Sequoia Capital, one of the world's leading venture capital firms, has published a letter that it sent to its entrepreneurs about the effects of the coronavirus, or what it calls "the black swan of 2020." The fund sent a similar letter during the 2008 financial crisis. "It will take considerable time - perhaps several quarters - before we can be confident that the virus has been contained. It will take even longer for the global economy to recover its footing. Some of you may experience softening demand; some of you may face supply challenges," Sequoia writes. The fund recommends that entrepreneurs should prepare for a period during which it will be difficult to raise capital, examine their expenses, and even consider laying off employees. At the same time, Sequoia recommends thinking about how to take advantage of the opportunities arising from the crisis.
There are opinions on both sides about Sequoia's letter - whether the fund is exaggerating, or perhaps sent the letter prematurely. In 2008, for example, when in my opinion the crisis was more severe, they sent their letter a few weeks after the collapse of Lehman Brothers.
I asked some Israeli venture capital investors for their view of the coronavirus.
Yair Snir, Dell Technologies Capital
"Small companies also have to take responsibility for their employees"
"The effects of the coronavirus are still not completely clear. In the short term, however, many entrepreneurs and investors will have to consider and prepare for extreme scenarios. These scenarios include damage to sales, cash flow risk, possible damage to financing rounds, etc. The most important thing now is to prepare a short and medium-term plan, and to try to avoid individual impulsive responses. This applies to both entrepreneurs and investors. Another point for consideration is that being a small, dynamic, and lively company does not absolve a company from responsibility for its employees and their health. We investors have a duty to impress this message on the entrepreneurs."
Sivan Shamri Dahan, Qumra Capital
"Israeli entrepreneurs are strong, and will adapt themselves to the market"
"There is no doubt that the world faces a very challenging period. For startups, undergoing an economic crisis for the first time can be a real earthquake. Companies have to reconsider their cost structure, make sure that they are investing carefully and in the most productive tools, that their forecasts are correct, and that they have enough money to get through this tough winter. At the same time, we believe that the Israeli technology industry is strong, and that the unique character of Israeli entrepreneurs will help them move quickly, adapt to the market, and also help find creative solutions and take advantage of opportunities. We are here for our companies in order to help them, and are continuing the same strategy of investing in additional promising companies. We hope to get through this period in the best way possible."
Shuly Galili, UpWest
"Companies that acted quickly in previous crises survived"
"In the most recent economic crisis in 2008, we saw that startups that acted quickly to control their costs and were sober in their forecasts survived the period of uncertainty.
"Very young companies in the pre-seed or seed stages suffered less in the 2008 crisis, and were able to maneuver more quickly. Mature startups in the advanced growth stages had to make many changes, including layoffs and cutbacks, and also had to deal with a decline in revenue. A recommendation to companies about to embark on A, B, and C rounds - realize that it will be difficult. If you have not yet contacted your current investors for some kind of bridging finance, do so now.
"What happened in 2008 with investors in Silicon Valley was a kind of stagnation with a big emphasis on a triage portfolio process, in which existing companies were strengthened, with fewer new investments. In previous crises, US investors focused on Silicon Valley, so they are expected to come to Israel less frequently.
"There are industries in which sales can be made by video, but if you sell to a more conventional industrial market, or one that requires installment of products, you will have to find creative ways of generating momentum with the customer. This is a very stressful period for entrepreneurs and investors, but there is also an opportunity to create a new species of technology that will solve the problem of distance from the office or the market."
Tal Barnoach, Disruptive VC
"It will be difficult to raise money without face-to-face meetings"
"Companies working according to the software as a service (SaaS) model must devise creative models that will enable them to sell without seeing the customer, mainly high touch models, in which the selling processes contain a close connection with the customer.
"It will be much more difficult for someone raising money from funds overseas. The inability to fly and the general mood have a great effect on the desire to invest. Investors will not invest without seeing the people face-to-face. Investors in Israel will also slow the pace of investment if the uncertainty persists. My recommendation is therefore to immediately cut costs in certain areas, such as development of future products and marketing budgets.
"If we reach a situation in which borders are closed, many companies will experience several months of slowdown. A situation will arise in which anyone not adapting will not survive. Companies are telling us that this is a tough year for them, and a year for survival, not a year of sales and growth."
Yaniv Golan, lool ventures
"Global crises are a growth opportunity"
"Although assessments of the severity of the health aspect of the crisis vary from one source to another, the effect on the business world is already being strongly felt, and is not going to disappear. Everything is changing. The forecasts issued two months ago are no longer relevant, and every company has to reassess the risks and opportunities. As an immediate initial step, we recommend that companies and their employees make the necessary preparations for a prolonged period of working from home, and to begin working like this to a limited extent this week, in order to verify readiness and solve problems in advance. Later, we call on companies and their managers to revise their plans in the realization that changes in the business climate and financing opportunities are expected, and then to go about looking for new opportunities in their fields of business. Global crises are an opportunity for growth and change in engraved concepts, and besides worrying about life itself, we must not miss the opportunity to use the crisis to do a better job of getting close to the world."
Natalie Refuah, Viola Growth
"An opportunity to stress priorities"
"Initially there will probably be a slowing of activity by companies in the 'first circle' directly affected by the absence of global movement of people. The damage in the 'second circle' will follow close behind, and is liable to slow, if not completely halt, the pace of sales by technology companies in general, especially those relying on creating leads at conferences and closing contracts in face-to-face meetings. The main question is, of course, how long the crisis will last - how long global travel and face-to-face meetings will be restricted. The longer it takes, the worse and broader the damage will be, and it will have a snowball effect.
"In addition, there is concern that the ability to raise money during this period will be affected, both because of the absence of face-to-face meetings that are important in this process, and because of investors sitting on the fence and waiting to see what happens to the market. We therefore recommend that companies should try to conserve their cash through considered and cautious measures in order to avoid as much as possible the need to raise money during the crisis. We are preparing for this in our work with companies and at board level. There is also frequently a positive side to such processes; it can be an excellent opportunity to look broadly at the procedures for spending money, and for stressing priorities, leading eventually to greater efficiency."
Guy Horowitz, Deutsche Telekom
"SaaS is likely to be at an advantage in working remotely"
"A great deal has been written about the beauty of the SaaS model, which generates predictability and reduces business risks. At the current time, it is interesting to consider two other aspects.
"The ability to consumer the software (service) from home becomes all-important in a world in which employees are likely to be absent from the office for prolonged periods. Even before the virus, the SaaS economy was more immune to a crisis, especially short crises, thanks to the method of payment (annual, in advance, and automatically renewed). At a time when employees are unable to go to the office, SaaS products, which are also always available from anywhere, will enable the customer to continue working effectively (not just collaboration tools, but any product that enables an enterprise to operate). Not every SaaS product is available for remote use, but the supply model of a product "as a service" makes it possible for more and more products to also be available remotely.
"At such a time, products sold via telephone by sales development representatives, without the need to visit the customer, have an advantage. Not every SaaS product makes it possible to sell remotely (because of the complexity or size of the sale), and those that do not require visits by salespeople and/or technical representatives before a deal is signed will be less subject to a decline in sales."
Published by Globes, Israel business news - en.globes.co.il - on March 9, 2020
© Copyright of Globes Publisher Itonut (1983) Ltd. 2020