Last month, I visited my hairdresser in Peckham Rye, where I spend over an hour getting my hair twisted into locks. With the current advice to minimise contact in public spaces, it is unlikely I can get my hair done for at least the next 4-6 weeks.
The strain on me personally is minor, but for my hairdresser, this impacts her livelihood, her children and her income. I have shared ideas for additional revenue streams such as paid video check-ins to advise customers like me on how to care for their hair at home for £10 a session. I also shared advice on managing debt and government support available.
What are the other pain points that new businesses are facing? What could private markets, big tech, VC and angel investors do to help weather the storm during these unprecedented times for startups?
How have startups been affected?
- Sales forecasts have been revised due to the travel restrictions and cancellation of events, which were previously factored into the business development pipelines.
- Supply chains have been impacted globally along with fulfilment, as people are being encouraged to work from home, reducing productivity and increasingly leaving demand outstripping an ability to supply.
- Hiring has been put on freeze as budgets are revised.
- Only a few months into the year and margins are already being squeezed, causing an increased focus on cash flow and lowering burn rate.
- It is a challenging time to raise funding given investors are rethinking their strategy and how things are impacting them as shown below.
- For some services such as massage therapists where it is almost impossible to continue, they are seeking support from HMRC, accountants, negotiating holiday periods with their banks and looking out for government subsidies.
What can professionals (consultants, lawyers, PR etc) do to help them?
- Support startups in crafting and sending proactive comms to reassure partners, customers, investors and key stakeholders. Make them aware that business is still running but here are the changes. Bigger corporates have started doing this already in the last 7 days.
- Support startups in operational excellence and performance improvement. Assess where costs can be cut whilst retaining existing customers. If possible, explore new delivery channels and revenue streams.
- Support startups in crafting updated polivies for employees i.e. Remote working policy as well as negotiate terms on supplier contracts.
How have the Private Markets been affected?
- Lenders are worried that many companies will struggle to make their debt obligations and therefore lead to bad debt.
- Most lenders are restricting loans to new customers as they asses their current book of loans.
What government support is there for startups?
- The British Business Bank has a Coronavirus Business Interruption Loan Scheme that startups may be eligible for.
- The Government announced a £500m hardship fund but has not provided details on how this will work yet.
- Awaiting more details from the budget on the £3,000 cash grant will be available to 700,000 of our smallest businesses.
How have big companies been affected?
- Enterprise companies are reviewing procurement pipelines and focusing on their biggest suppliers first, so sadly any new startups contracts may be delayed, reduced or cancelled.
What could big companies do to help startups?
- It would be great if Big Tech companies (Facebook, Amazon, Microsoft, Apple and Google) could come together during this time and provide a network of support given their reach, brand trust and domain expertise. It would be great if they provided one to many support as a “Helpline” to provide tactical advice, discounts, small business bursaries and introductions where possible.
How have VC Investors been affected?
- Some limited partners (investors who invest in VC funds) with portfolios exposed to the stock market have decided to raise capital calls to withdrawal their funds from VC funds.
- Therefore, some VCs have pulled their term sheets from startups as a result.
- Others are rethinking their investment strategy and adapting due diligence to consider how their portfolio will weather the storm.
How can Angel Investors help startups?
- They can reach out to their portfolio and see where they can add value based on the above. Startups are their customers, so delivering value to them creates value for the investor.
- Angel investors may have to be flexible and consider providing working capital loans, convertible notes and other flexible forms of finance to startups to plug the widening funding gap.
- Finally, investors should update their investment strategy and think about what due diligence should look like given the above i.e. greater focus on the startup’s ability to remain resilient during these uncertain times.
How are you adjusting your strategy currently? What small things have you found helpful for startups you support? Let me know in the comments below.