Dear startups: here’s how to stay alive

There are storm clouds gathering over Silicon Valley – and it’s more than just El Nino.

As a venture capitalist, I see a lot of data points within the private company marketplace. Every Monday, I sit in a room with my partners and we discuss dozens of companies, both portfolio companies as well as those we are considering for investment. When a market turns, we tend to see the signs earlier than the entrepreneurs working on the front lines.

This market? I’d say it has turned.

It is going to be hard (or impossible) for many of today’s startups to raise funds. And I think it will get worse before it gets better. But, hey, my entrepreneurial friend, whoever said it was going to be easy?

One of my favorite expressions is: “That which does not kill us makes us stronger.” So which is it going to be for you?  Tougher?  Or dead.

That which does not kill us makes us stronger.

Fortunately, (unfortunately?) I’ve been to this movie before, during the dot-com “nuclear winter” – anyone remember that? I’d like to think I’ve learned some things from that painful experience.

I’ve seen companies live, and I’ve seen them die. And I’ve concluded that certain behaviors separate the two.

Which behaviors, you ask?

Here are a few from my downturn playbook for how to stay alive.

Stop clinging to your (or anyone else’s) valuation

You know what somebody else’s fundraise metrics are to you?  Irrelevant. You know what your own last round post was? Irrelevant. Yes, I know, not legally, because of those pesky rights and preferences. But emotionally, trust me, it is irrelevant now. We even have a name for this – valuation nostalgia. Yes, it was great when companies could raise those amounts, at those prices, blah, blah, blah, but the cheap-money-for-no-dilution thing is largely over now. The sooner you get on with dealing with that, and not clinging to the past, the better off you will be.

As my DFJ partner Josh Stein says, “flat is the new up.”

But for now, reset your goals. You also have to know which metrics drive the business, and focus on them like your survival depends on it – because it does.