SF

Apr 7, 2020
Tags: ,
Share

As a business leader, Craft Ventures VC David Sacks has experienced two major crises – the dot com crash (as PayPal’s founding COO) and the 2008 recession (as Yammer’s CEO). In times like these, he believes leaders need to level with their teams, adapt a Churchillian approach, and leverage “hard talk” instead of “happy talk”.

At a recent brunchwork, David Sacks – now at the helm of Craft Ventures – answered questions from founders and millennial business execs navigating COVID-19:

 

With so much economic uncertainty, what framework should we use to plan ahead for our businesses?

Plan for a “U”-shaped economic recovery. In a “U”-shaped trajectory, we will stop the exponential spread of the virus, but it will take 18 to 24 months to get the situation under control. Planning for a “V”-shaped recovery (business-as-usual by June) is risky. If you’re wrong, your company is dead. It’d be nice if you could plan for the “L” (the worst case scenario; it’ll take a generation to rebuild the damage), but that’s probably too hard.

 

What should our fundraising strategy look like?

Avoid fundraising for at least three months. Even if you have great numbers, this is a bad time to raise. Since VC investors still expect hyper growth, they are viewing almost every deal now as distressed. You won’t end up with a term sheet you like.

 

What is your take on the CARES Act? Can start-ups rely on it?

Don’t wait for the government to save you. That’s a risky bet, especially if you lack a sustainable burn rate. We aren’t certain who’ll qualify or when funds will come through. Instead, adopt a self-reliant approach. Assume you won’t get government money, rationalize your cost structure, and get your business on sound footing. Still apply, just don’t rely on it.

 

What does it take to get our businesses on sound footing?

Plan for your cash reserve to last eight to ten quarters. Slam on the spending brakes and pivot to a low burn model ASAP. The quicker you react, the better your chance of surviving. Exercise extreme caution and restraint, even if you were in high-growth mode before. It’ll take a few more months (at least) to figure out how truly disrupted you are. You don’t want to figure out later that you are severely impacted and burned too much money.

 

If we scale back paid marketing, how do we get the word out about our product?

Lean into viral distribution tricks. For SaaS companies, try bottom-up employee adoption. Don’t try to get in the door by approaching a company’s IT department. Instead, get employees to try your product for free and spread it to their co-workers. It’s the “land and expand” that I used at Yammer, and the same trick Slack and now Sourcegraph (a Craft Venture portfolio company) adopted.

 

What is your view of the impact of the pandemic on…

    • Working from home? There are long-term opportunities as more employees will have the option of working remote, away from their company’s HQ. But, there won’t be a mass migration out of cities, as they still have their advantages.

    • E-commerce? While online shopping will stick with new adopters, start-ups shouldn’t try to compete with Amazon. You need to do something very orthogonal and different.

    • HealthTech? This industry could benefit from the crisis, depending on the area. Craft recently invested in Trusted Health, a nursing marketplace that helps staff travel nurses, and they’re seeing strong demand right now.

    • FinTech? Consumer-driven FinTech will get very disrupted. Credit markets seize up during times like these, as will most consumers because unemployment is skyrocketing.

    • Real estate? Not in great shape for the next year. Despite this, Craft just did a Series A with Homebound, which sells construction management software. Because there’s no way COVID-19 is the end of the construction industry.

The good news: Trends that were growing before the crisis will stick and be here for the next 10 to 20 years.

For more advice from industry experts like Craft Ventures VC David Sacks, check out our newsletter.

LET’S STAY IN TOUCH

JOIN OUR NEWSLETTER