During times of economic uncertainty like those we currently face, founders must overcome numerous challenges in managing their businesses, teams and investor relations.
Cash flow becomes critical, sales may be declining, and fundraising can be more difficult. In such situations, founders need support from their VCs to survive and thrive in the long run.
However, this support is not automatic, and founders need to know what questions to ask their VCs to ensure they are getting the support they need.
Here’s what every founder should be asking their VCs right now (if they haven’t already):
Can you help us assess our cash runway?
During a downturn, cash is king and startups need to manage their cash flow carefully to survive. Founders need to ask their VCs for help in assessing their cash runway, which is the amount of time the startup can survive with the cash it has on hand. VCs can provide valuable guidance on how to extend the runway by reducing expenses or generating additional revenue. These conversations can also be essential building blocks for bridge-round deals.
What can we do to boost our revenue?
In a downturn, sales can be challenging, and startups need to find ways to boost their revenue. Founders should ask their VCs for advice on how to generate more revenue, whether it is by pivoting the business model, exploring new markets, improving the product offering, or even merging with other companies. Investors can also leverage their networks to provide introductions to potential customers or partners.
How can we cut costs without damaging the business?
During a downturn, startups need to be efficient with their spending to preserve their cash. However, cutting costs can be a delicate balancing act, as startups need to maintain their competitive advantage and not damage the business in the long run. Investor advice can be extremely impactful here — whether it’s helping to negotiate contracts, eliminating nonessential expenses, leveraging investor resources or sharing costs with other startups within their portfolio.
What is the status of our funding round?
Fundraising can be more challenging during a downturn, and startups need to know where they stand with their next funding round. Founders should ask their VCs for updates on how their next funding round could be shaping up, including the status of negotiations, the amount of interest from investors, and any potential roadblocks. VCs can provide valuable guidance on how to position the startup for success during the fundraising process while leveraging their networks to gain more investor interest.
What other resources or connections can you provide?
During a downturn, startups may need additional resources or connections to survive and thrive. Founders should ask their investors for introductions to potential partners, customers or investors who may be interested in the startup’s product or service. VCs can also provide guidance on how to access government grants or loans, or how to leverage the resources of the startup ecosystem to boost the startup’s chances of success. Additionally, many VCs offer support for legal, accounting, marketing, design and more, as a means of differentiating their funds from the competition. Take advantage of these resources wherever available.
Founders need to be proactive in seeking support from their VCs during times of uncertainty. Investors want to do everything they can to support their portfolio, and by asking the right questions, founders can get the guidance and resources they need to survive. Founders should not be afraid to ask for help, as VCs are invested in the success of the startup and want to see it succeed. By working together, founders and VCs can weather the storm of a downturn and emerge stronger on the other side.