EBAN President and Board on How to Manage the COVID-19 Crisis
This newsletter is difficult to write, as the situation in EBAN member countries is so different, from the dreadful experiences in Italy and Spain to the countries where there are few COVID-19 cases and no deaths.
And there is simply too much data (often conflicting). One extreme is the view that restrictions will be lifted within two weeks from when I write this, others paint pictures of a mutating virus, second and third waves, Covid-2x and the start of a global depression.
In any case, in my view, it is the readers’ duty to protect the health, income and welfare of others, in the short term by helping entrepreneurs make decisions about accessing governments’ support schemes and in the medium/longer term by ensuring the survival of businesses. Although, it is also clear that, in time, business models, ways of interacting and community spirit will all have changed for the better.
There is an overwhelming amount of information and advice circulating about how entrepreneurs and investors should adapt to cope with the crisis. I will give a few bullet points, followed by advice from a few members of my board.
- The adage that “cash is king” is even more important than ever. Sales will drop for many businesses (some to zero for weeks or months), equity funding may be difficult to source and at reduced valuations
- The first task is to re-forecast the company’s budget, with assumptions which can be altered as one learns more about timescales. Naturally, fully investigate and use your national government’s support schemes
- For example, one of my portfolio companies (which manufactures hardware) has three phases – stop manufacturing; stop technology development and sales; mothball the company. Phase 1 has already been implemented (in the UK, their salaries are now paid by our government). Phase 2 will be discussed in mid-May. We sincerely hope that phase 3 will never be necessary
- Ensure the health of your staff (and yourselves!) – using regular, transparent communication, financial support and encouraging physical and mental wellbeing.
- I would recommend looking at Arachnys’ response to the COVID-19 outbreak as an example of new working practices (I’m on the board of this company)
For angels and other investors:
- Offer help within your skillset
- Be prepared for taking extra risk when investing in your portfolio
- Make a decision whether to continue to look at new opportunities or not, and ensure that is clear to entrepreneurs. It may be appropriate to continue to mentor entrepreneurs, but make sure they know that new investment will not be available for several months
- Behave yourselves – I have heard of investors who have either pulled out or significantly altered the terms of deals, at the last minute.
- There will be very interesting opportunities as markets and business models change
Advice from EBAN Board Members:
Ian Sosso, Monte Carlo Capital:
Businesses that have been in fund raising mode or expected to be in the next 6 months are delaying any unnecessary expenses whilst we are working on the financing. As soon as financing is done, those businesses whose model is not directly impacted will resume full expansion. We don’t have many businesses directly impacted (as we do a lot of deep tech), but when they do, we will remain in cash preservation mode till the crisis is behind us.
Jesper Jarlbæk, DanBAN:
- i) Keep the money flowing to start-ups: hold virtual pitch events. DanBAN has offered virtual access to pitch events for some time. Currently, it is the only way to access pitch events. Our members are taking advantage of this.
- ii) Lobby for the governments to increase leverage on equity or loan matching funds
As angels seek to protect their portfolio, investments in new enterprises will shrink. To offset this the Governments should increase leverage on matching schemes, be they for equity or loans from typically 1:1 to a much higher number.
Panagiotis Ketikidis, HeBAN:
Dress code for start-ups in this crisis is ‘slim fit’ or even ‘skinny fit’. Start-ups, if you have not done the necessary homework yet now is the time to do so! Angels, support/extend your previous investments!
Candace Johnson, Sophia Business Angels:
I urge all entrepreneurs and investors to first of all stay safe and healthy and to use this time to concretely plan ahead for a changed world which will need more than ever before the innovation, resourcefulness, solutions and energy from its entrepreneurial and early stage investment eco-system.
Selma Prodanovic, Austrian Angel Investors Association:
The one crucial factor for the success of your portfolio will be the resilience and mental strength of your founders. This global crisis adds complex layers to the “usual” pressure of startups. A scared or anxious founder cannot lead, sell or fundraise. It is in your interest to either take over the coaching role (sometimes contradictory to your role as investor) or to invest into experienced startup coaches. NOW.
Ricardo Luz, FNABA:
Spe futuri. Always! Believe in yourselves, as individuals and community. Life is the biggest blessing but also a huge responsibility. And don’t forget that freedom takes a lot to be achieved but can be lost quickly. So never stop fighting!