A VC who has invested in numerous downturns shares 5 tips he gives to his portfolio companies to survive a crisis. 'Hunkering down is not enough.'
Paul Asel is the San Francisco-based investor and managing partner at NGP Capital, and has invested in startups for around 25 years. Over the past few market downturns, including the Asian financial crisis and the financial crisis of 2008, Asel has distilled five key pieces of advice he gives to portfolio companies to help them through tricky periods. "A downturn is actually a better environment for companies to develop, most other businesses are distracted so it provides an opportunity to innovate quietly and to take time to perfect models," he told Business Insider in an interview. Click here for more BI Prime stories.
Going through a financial crisis isn't easy for fledgling startups, but market downturns have previously birthed giants such as Airbnb and Uber. Paul Asel is a San Francisco-based investor and the managing partner at NGP Capital who has invested in startups for around 25 years. He has seen downturns from the Asian financial crisis in the late 1990s to the dotcom bubble and the 2008 financial crisis. He has distilled five key pieces of advice he gives to portfolio companies to help them through tricky periods. "A downturn is actually a better environment for companies to develop, most other businesses are distracted so it provides an opportunity to innovate quietly and to take time to perfect models," he told Business Insider in an interview. There are signals that current nationwide lockdowns, brought in to counter the coronavirus pandemic, could last through 2020 and beyond. Asel is telling portfolio firms to hunker down. "We are advising our companies that this is going to be deeper and longer than anticipated," he said. In recent years, he has focused his investing in smart mobility propositions having been an investor in Lime's 2017 Series B and Indian car rental startup Zoomcar. The current crunch on travel has put the sector under pressure. "We have gone through the 50 companies in our portfolio and over 80% have been negatively impacted by coronavirus, but we believe over 80% will come out better if they can survive next 12 months," Asel predicted. Here's the advice that Asel is giving his portfolio companies:SEE ALSO: The 2008 financial crisis heralded giants like Uber and Airbnb. We asked top investors what they are looking for during a downturn. 1. Just focus on surviving the next 18-24 months
The most important thing a startup can do in a downturn is survive, according to Asel. "A runway until the end of the year is not enough, it needs to be longer than that," he said. 2. Get money as quickly as you can
Now is the time to be capital efficient but to do that you need capital. "Get a deal done on whatever terms you can to get money in," Asel added. 3. Thriving is as important as surviving
"Hunkering down is not enough, there has to be a vision that can succeed at other end," Asel said. The market after a downturn will be different with some competitors out of business and altered consumer and business habits to consider. 4. Communicate frequently and broadly
"Communicate to all stakeholders, as everyone is nervous," Asel said. "You get feedback and you need a fast feedback loop. The more feedback you get the more you can aid your planning." 5. Innovate and learn to live with less capital
"There's a perception that what is good for investors is not good for entrepreneurs, and vice versa but these interests are aligned, paradoxically," Asel said. "If valuations are lower, there's less dilution for the entrepreneur and if less capital is needed for success then that's good for both parties."
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A Silicon Valley VC firm says that it's permanently closing its 15-year-old office because it's no longer necessary to have a presence on Sand Hill Road — tech's investment capital — to close big deals
Summary List Placement As the coronavirus crisis has closed grand tech campuses and small startup offices...Summary List Placement As the coronavirus crisis has closed grand tech campuses and small startup offices alike in Silicon Valley, more and more companies are struggling with when — or whether — to reopen high-cost spaces in the Bay Area. Among those abandoning on-site work altogether is Storm Ventures, a VC firm that has funded the likes of Blind and SignalWire, which plans to abandon its 15-year-old office on renowned VC-hub Sand Hill Road when its lease ends in October. The decision to end the lease had been brewing for a while, Storm Ventures cofounder and managing director Ryan Floyd said. After all, employees were rarely in the office – aside from two Monday meetings, partners were often out meeting with portfolio companies or new startups, instead of asking them to make the trek to Menlo Park. Floyd says that the reason the team wasn't in the office was that partners were "meeting people where they were." It no longer makes sense for VCs to expect startups to trek to Sand Hill Road to pitch their startups, Floyd said. For decades, Sand Hill Road in Menlo Park has been considered the "epicenter of the VC world" for bridging scattered tech communities in Palo Alto, San Francisco, and Sunnyvale. Billions of dollars have flown through Sand Hill Road and big names in venture capital like Greylock Partners and Kleiner Perkins still have offices there. But Floyd thinks that its cachet as tech's investment capital is becoming irrelevant in the same way that the physical location of Wall Street has. "It's like, once upon a time on Wall Street, you had to be on Wall Street because the exchanges made you do that, because you had to be able to settle trades physically," Floyd said. "Of course, that became irrelevant with electronic trading and computers." As VC firms fight over buzzy startups, Floyd believes that the best way to compete and build good relationships with startups is meeting them where they're at while convincing them that Storm provides not just the money, but also other services, like expertise. "If you think about it from a service provider standpoint all of a sudden, 'Yeah, we should be going to see more entrepreneurs and we should be meeting at their companies,'" Floyd said. Plus, Silicon Valley isn't the only place for startups to build their businesses anymore. Floyd has traveled to the other side of the country to do business with blossoming startups. In 2016, the company invested $1.9 million into event management software Gather based out of Atlanta, which Floyd flew to roughly a month after signing a dea. He also flew to Milwaukee in 2019 to finalize a term sheet at the home of the founder of Zoom competitor SignalWire. Storm Ventures' choice to leave its office follows an on-going trend of startups spreading across the country, even pre-crisis. The convenience of working from home started replacing the allure of open workspaces and quirky company culture practices like shoeless offices: In a 2017 Stack Overflow survey, around 53% of respondents said being able to work remotely was a priority for them. About 10% of the companies that Storm Ventures itself has invested in are distributed (meaning that they don't have one central hub for employees), including Pinpoint, Signalwire, and Rainforest. For Storm Ventures, the coronavirus-related transition to remote work over the past few months has actually brought the team closer together. Floyd sees his coworkers more often now than he did at the office, he said, thanks to open-ended, nonobligatory daily meetings where he can interact with other members of the office. The switch to work-from-home has made the team more communicative, too. "When you have to work remote, you're forced to put together a lot of processes in place to communicate with your team better, to share information better," Floyd said, "Because you're not all in the office where you can be lazy about how you share information. And that's been awesome." The firm, which invests heavily in Saas products, has also been using its portfolio companies to work remotely. Floyd uses SignalWire to host video meetings. The company switched from Salesforce to Gmail years ago so it could use customer relationship management platform Copper that hooks up with G Suite – another portfolio product. It also built Slack integrations using Workato, a workflow automation company it invests in. "It's fun to use your own companies," Floyd said, "And have a really good feel for what they do and what works."Join the conversation about this story » NOW WATCH: Epidemiologists debunk 13 coronavirus myths
Nearly 10,000 companies backed by venture capital or public equity investors got small-business loans under the PPP
Startups backed by some of the most well-heeled venture firms received loans under the Paycheck Protection...Startups backed by some of the most well-heeled venture firms received loans under the Paycheck Protection Program, a federal initiative designed to keep small businesses afloat during the coronavirus-related shut downs, according to a new analysis by CB Insights. Some 87 portfolio companies of New Enterprise Associates, which has $24 billion in assets under management, were listed in the government's report as participants in the program. Another 55 companies backed by Andreessen Horowitz, which manages a portfolio of $11.3 billion in assets, were listed as PPP loan recipients. In general, venture firms that have greater numbers of portfolio companies had higher numbers of them participating in the PPP loan program, according to CB Insights. Visit Business Insider's homepage for more stories. Startups backed by some of the most well-financed venture firms participated in the federal government's coronavirus-related small-business loan program, according to an analysis of loan data by CB Insights. New Enterprise Associates, Accel, Sequoia Capital, Andreessen Horowitz, and Lightspeed Venture Partners each have at least $10 billion in assets under management and rank in the top 11 best-funded venture firms, according to PitchBook. Each organization had at least 23 of its portfolio companies that took part in the loan program, known as the Paycheck Protection Program, or PPP, according to CB Insights, which analyzed data provided by the Small Business Administration and the US Treasury Department. Some firms had many more than that. For example, some 87 startups backed by New Enterprise Associates, which has $24 billion in assets under management, took part in the program. In terms of the number of portfolio companies participating in the PPP, NEA ranked no. 1 among traditional venture firms. Andreessen Horowitz, which manages $11.3 billion in assets, had 55 startups in its portfolio that were listed as PPP loan recipients in the government's list. That was enough to rank it third among traditional venture firms, following Alumni Ventures Group, which had 58 companies listed as participants. Representatives of NEA, Andreessen Horowitz, and Alumni Ventures did not respond to emails seeking comment. Venture-backed companies aren't necessarily "rolling in money" The rules governing the PPP were somewhat murky and the SBA modified its guidance several times, but there was nothing in the rules that prohibited venture-backed startups from taking part in the program, said Kathleen McGee, counsel in the Tech Group at the Lowenstein Sandler law firm. Such companies simply had to assess whether they needed the funds and document that need. Some startups went through that process and obviously felt they qualified for the program, regardless of having VC backing from prominent funds. Indeed, just because certain startups that received PPP funds were backed by well-heeled venture firms doesn't mean they had ready access to or any kind of claim on those firms' capital, said McGee, who helped advise companies and venture firms on whether to apply for the loans. "There is a misconception amongst the public that if you have a VC [investor] that you are automatically rolling in money," she said. "And if you talk to any startup, they will tell you that is absolutely not true." Established by the Coronavirus Aid, Relief, and Economic Security Act, the PPP was intended to keep small businesses afloat while large parts of the economy were shut down to minimize the spread of COVID-19. The program offered initially $349 billion, and then another $320 billion in loans and promised to forgive those loans if businesses used them for necessary expenses, particularly paying workers. Confusion and controversy surrounded the PPP The PPP was rife with controversy and confusion almost from the beginning, particularly when it came to whether venture-backed startups could participate. The initial guidance from the SBA and the Treasury Department seemed to indicate that many venture-backed firms would be too big to be eligible, not because they had large workforces themselves, but because they would have to include the staff at every other startup funded by the venture capital firms they had in common. After the government made clear it wouldn't apply such affiliation rules to PPP applicants, many startups looked set to participate in the program. But then the SBA and the Treasury Department issued new guidance which seemed to indicate that private equity and venture-backed companies might not qualify because the startups, in theory, had other sources of cash they could turn to. The agencies later clarified that it would deem that all applications made for less $2 million were done in good faith, seeming to give venture-backed companies yet again a green light to participate. That guidance led many companies to find other ways to stay afloat during the downturn and either withdraw their applications or return loans they had taken out. Earlier this month, with some $130 billion still available under the program, the government extended the deadline for applying for PPP loans. Nearly 10,000 investor-backed companies took out loans Despite the confusion, some 9,657 companies that are backed by venture or private equity investors took out PPP loans of at least $150,000, according to the data released by the SBA and scrutinized by CB Insights. The SBA didn't disclose the exact amount of the loans given to particular companies, instead only providing a range of, say $1 million to $2 million, or $5 million to $10 million. But combining the midpoint of those collective ranges, the estimated amount that venture and private equity-backed companies received in PPP loans was $11.1 billion, according to CB Insights. That would mean that the average amount for each company was around $1.2 million. The venture-related firms with the most companies listed as participating in PPP were all either startups accelerators or seed-stage investors. Plug and Play Tech Center led the pack. Some 149 of the companies that took part in its accelerator program were listed as receiving PPP loans, according to CB Insights. Of the companies that it has backed with its venture fund, 68 were listed as PPP recipients. Y Combinator and Techstars, both of which are also startup accelerators, each had 100 or more portfolio companies listed as taking PPP loans. 500 Startups, yet another accelerator, had 67 of its companies participate in the program. 500 Startups partner Clayton Bryan said in an email that the firm was still reviewing its data, so it couldn't confirm that number. But even if it's accurate, it would represent only a small portion of the 2,400 companies the firm has invested in, he said. As an early-stage investor, 500 Startups often gives companies one of their first checks, frequently before they're generating any revenue, Bryan said. The firm advised companies only to apply for PPP loans if they really needed the money, he said. "We believe that only the ones that truly were in dire need, in many cases our youngest companies, explored this option," said Bryan. The companies it invests in, he continued, "are the most vulnerable to exogenous macroeconomic shocks, and raising money on the private markets does not insulate them from the economic impact of a pandemic." Representatives for Plug and Play and Techstars did not respond to requests for comment. A representative for Y Combinator declined to comment other than to note that the firm is different from other venture firms in that it invests only small amounts and takes small stakes in the companies it backs. That's "something to keep in mind when comparing YC with VCs," said Lindsay Amos, a spokeswoman for Y Combinator. Venture funds with more portfolio companies had more loans In general, the number of a venture firm's portfolio companies that took part in the PPP appeared related to the total number of companies it has backed, said Anand Sanwal, CEO of CB Insights. Startup accelerators back lots of companies each year, and many have been investing over a period of many years now, so have lots of portfolio companies, he said. Even firms that invest at later stages have lots of portfolio companies both recent and historical, Sanwal said. Just in 2020 alone, Andreessen Horowitz has made 54 investments, he said. The number of backed companies that participated in the program "was generally pretty correlated with portfolio size," Sanwal said. It's unclear what portion of companies listed as taking out loans under the PPP actually participated in the program. Some Silicon Valley companies have denied getting PPP loans, despite being included in the SBA's list. Read more about the PPP: More than 4,800 startups that applied for federal PPP loans in the coronavirus-led shutdown had raised venture funding in the last 2 years Several Silicon Valley companies were listed as coronavirus paycheck loan recipients — but some say they never applied for loans in the first place The government is now giving startups a green light to participate in its $670 billion small-business loan program, but at least some advocates are urging caution Startup advocates worry venture-backed companies that got money under the $670 billion small-business loan program are going to have to give it back SEE ALSO: Silicon Valley startups may get to tap into the $350 billion coronavirus small-business loan program after all, thanks to late rule changes by regulators Join the conversation about this story » NOW WATCH: We tested a machine that brews beer at the push of a button
Brex and Zendesk crunched their customer data and created a presentation to help startups jolted by crashing sales. Here's what they learned.
Brex, the fintech startup that sells primarily to other startups, just shared its framework for handling...Brex, the fintech startup that sells primarily to other startups, just shared its framework for handling customer support during the economic crisis. Many startups have been advised by investors and advisors to cut costs and extend their runway, but without clear guidance on how to do so while maintaining customer relationships. In an analysis of startup data, Brex found that those with the best chance of successfully retaining customers, and therefore retaining revenue streams, was to standardize the customer experience process. See the playbook and guidelines Brex just released together with HR startup Zendesk. Click here to get BI Prime's weekly 'Trending' tech newsletter in your email inbox. Fintech startup Brex has advice for other startups struggling through the economic crisis: It may be difficult to sell your wares to new customers right now, but there are things you can do to get more from the customers you already have. Brex, which provides credit cards to startups, analyzed data from its own customers and worked with HR company Zendesk to produce a set of customer service and support guidelines. The idea of the project, which the companies presented this month in one Brex's ongoing series of webinars, is to provide insight and actionable tips that can help young businesses jolted by the coronavirus pandemic. According to Brex and Zendesk, customer service is a vital skill that more startups would do well to focus on. "We really have to change our mindset in this moment away from selling and towards retention by trying to find growth, if possible, through that existing customer base that we have," Zendesk vice president of startups Kristen Durham said. That's important because sales prospects are bleak for a lot of startups, especially those that cater to sectors hard hit by the virus. "One of the things that really has been striking for us is some of this data around the fact that businesses are no longer selling," Durham said. "Sales teams are sending about 50 percent more emails to prospects than they were pre-COVID but the responses just keep dropping." The drop in raw sales numbers is a scary situation for startups that have been advised by their investors to cut costs and extend their runways. Without much guidance on how exactly to make that happen, startup founders are walking something of a tightrope — if revenue drops off, they might have to resort to executive salary cuts or layoffs just to stay upright. Keeping customers happy is as important as keeping employees happy, Brex chief customer officer Roli Saxena said, and requires founders to employ similar tactics to sales, such transparent communication. Overall, startups need to have a standardized plan in place to make it through the rough waters ahead, and out the other side, Saxena said. Here is the customer service and support strategy Brex developed with Zendesk.SEE ALSO: See the deck that top growth-stage investor Insight Partners is using to prepare its founder network to weather a prolonged economic downturn