John Bruck shares insights from recent ACA webinar, QCA experiences
(EDITOR’S NOTE: We contacted several of the angel and venture investors in the region to get their thoughts on how the COVID-19 pandemic is impacting their activities and their portfolio companies. We have published four thus far: Ken Woody, President and Partner at Innova Memphis {click here}; Tony Lettich, Managing Director of The Angel Roundtable {click here}; Eric Dobson, Chief Executive Officer of Angel Capital Group {click here}; and Grady Vanderhoofven, President and Chief Executive Officer of Three Roots Capital {click here} offered their insights in previous articles. Today’s input comes from John Bruck, a very active Knoxvillian who is an Investor Member in Queen City Angels in Cincinnati.)
You’ve recently asked the start-up community for ideas that might help us all, especially start-ups and their founders, deal with the business slowdown caused by the COVID-19 virus.
Last week, I had the opportunity to attend a webinar hosted by the Angel Capital Association that included presentations from Victor Gutwein, Managing Partner at M25, and Pat LaPointe, Managing Partner at Frontier Angels. Those presentations covered several ideas that our local community may benefit from, as well as several more ideas from my own experiences of the past several weeks with Queen City Angels (QCA).
Companies that are doing reasonably well during the COVID crisis are generally in healthcare (such as telehealth, selected pharmaceuticals, and prescription delivery) and in the digitization industry (such as online course delivery, tele- and vid-conferencing, and online project management). The sectors that have been hit hardest are apparently the restaurant and events industries (including sports), and those companies that depend on events for sales lead generation.
From a start-up company’s perspective, there are several pain points that result from the COVID crisis, including: (1) cash and runway (or lack thereof); (2) existing contract terminations, delays and slowdowns; (3) employee attraction and retention; (4) remote employee productivity; (5) new contract award delays; (6) delayed capital raises and lack of new capital altogether; and (7) valuation squeezes and renegotiation of other key terms.
At QCA, we’ve conducted a complete analysis of our portfolio companies along with each CEO/Founder. We’ve found a few that will likely not survive through the summer, but for the most part, our companies will make it through the year in reasonably good shape. From that analysis and other conversations across the start-up landscape, it appears more important than ever to: (1) ensure that all avenues of financial assistance through the federal CARES Act are explored and acted on through banks and the SBA; (2) make more email and other virtual connections than usual to leverage off experience and successes across all investors and founders; (3) create Zoom and Slack groups to collaborate quickly and effectively; (4) review, again and again, your financial projections along with various scenarios of downturns and market complications; (5) find ways to preserve cash, lower burn rates, extend expense schedules and speed incoming payments by discounting and factoring; (6) re-examine growth strategies to prioritize higher current market demand, lower cost, and faster speed-to-market projects and features; and (7) know what your shutdown triggers are and when it’s “time,” know how to conduct an orderly “winding up of the business”.
Based on QCA’s experience during the 2007-2009 recession, we do not expect that the number or dollar amount of our investments will decrease over the remainder of this year. It is clear that our priority will be to ensure that existing portfolio companies have the resources and guidance to “clear the current hurdle” which will shift investment to more follow-on types and will make new deals harder to approve. Regardless, well-planned deals that are reasonably valued certainly have a chance of getting funded, but terms through the foreseeable future will definitely be tighter.
A couple of other points worth sharing:
- During crises, people tend to shift away from creativity and innovation and shift toward “learned responses.” It might be valuable to remind companies and team members to continue to invoke their creative and innovative talents – those talents are likely the reason for your success prior to COVID, so don’t abandon them altogether. And as long as the short-term tactical constraints are managed, be sure to guide the company strategically (full picture, long-term).
- It’s important to be patient, understanding and caring during these tough times. This disease will get very close to a lot of us, and possibly in the worst way, so remember how important it is to be a compassionate, well-informed human being. Also, remember that with investors and start-ups it’s a relationship thing, and showing compassion at the right time (now) can build trust and an even more effective relationship between investors and their portfolio companies.
