PART 3: Ken Woody shares advice that Innova is providing its portfolio companies
The third article in our series sharing the cautionary advice of investors to their portfolio companies comes from Ken Woody, President of Innova. Previous articles have spotlighted the thoughts of Eric Dobson, Managing Partner at Sheltowee Angel Network (click here to read that article), and Derren Burrell, Founder and Chief Executive Officer of Veteran Ventures Capital (click here to read that article).
“Many of our portfolio companies finished 2021 very strong after a rough COVID period,” Woody wrote. “Many were actually at all-time highs for orders, and profits were strong as demand ran very high. Some took on more capital as they ramped up for strong continued growth. The first quarter has been much different. While demand remained strong, supply chain issues have created continual problems and has been constantly changing. Companies that had strong growth are suddenly running into a brick wall as they struggle to fulfill orders. Profitability has suffered in many cases as prices have soared due to inflation. At the same time as companies are retooling and thinking about taking on more capital to manage the downturn, many VCs are pulling back on investments.
“With this background, we’re counseling our companies to once again conserve capital, only focus on new investments when growth opportunities look very solid, and to look for opportunities where others may be struggling. Investors are wanting to see very clear signs that these companies have a clear plan to deliver on their plan, and that the headwinds of inflation, declining demand, workforce challenges and supply chain issues can be overcome. This is NOT a time to be making wild bets, hiring in anticipation of strong continued demand, and making large capital or inventory purchases.
“Another clear challenge we’re seeing is many of the larger strategic corporations are proactively buying up large amounts of raw inventory, finished goods, and dominating suppliers in anticipation of continued problems. This is a good opportunity if you’re a supplier, but if you’re a smaller company trying to compete, the suppliers can no longer meet short term or long term needs. So how much do you buy, when you have uncertain demand, increasing prices, and diminishing capital. These challenges require strategic planning, focused first on short term survival, and long term positioning. There are no easy answers but the earlier companies think through these scenarios the better off they will be.”