Startup survival beyond Covid-19: What SEA founders are doing

Entrepreneurs are optimists, sometimes to a fault. Amid the Covid-19 pandemic, many have hoped for a V-shaped economic recovery. But here in Southeast Asia, where our firm Golden Gate Ventures invests in 10 countries, we see the smartest startups gearing up for an L-shaped curve – the kind of recovery with a long bottom and uncertain future.

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This strategy is more than a matter of being cautious, and we recommend that founders should simply manage realistically.

“They used to be peacetime CEOs, and now they need to be wartime CEOs. Now is a good time to focus on survival,” Helen Wong, a partner at Qiming Venture Partners, said during an online panel we hosted recently.

The purpose of the event was to get an investor’s-eye view of the road ahead after Covid-19 from a diverse group of global limited partners (LP) and general partners (GP). The panelists remained upbeat overall but sounded some ominous downbeats for startups, especially those in search of venture funding.

Why we’re facing a “new abnormal”

LP David Gonino, head of the Alfred I. duPont Charitable Trust, proclaimed: “Business is alive and well, although at a much slower pace.” This means the industry will see fewer deals that take longer to do.

Gonino and another US-based LP, Ed Grefenstette of The Dietrich Foundation, also see a wide range of investment options amid the emerging climate. Private credit deals, public securities, and buyouts of distressed assets will all compete for capital with private equity.

Now to flesh out the picture, add in the global economic forecasts that have been published. The International Monetary Fund’s “baseline scenario” projected a grim 2020, followed by a hard-won upward trend in 2021. But this included a host of best-case assumptions, and the IMF warned, “The risks for even more severe outcomes… are substantial.”

One core problem is shrinking demand. When cash-strapped or unemployed people buy less, everyone’s gears grind down

In Southeast Asia, Malaysia’s economy and government rely heavily on Petronas, the state-owned oil and gas company. What if oil prices stay low as people drive and fly less? Samsung makes most of its smartphones in Vietnam, where it is the country’s largest private employer. What if sales of consumer electronics continue to slump? And what if a new global crisis strikes before we recover from this one?

Maybe a combined worst-case scenario is just as improbable as a confluence of best cases, but it doesn’t take a perfect economic storm to sink small boats like startups.

Our firm’s advice to founders/CEOs in a nutshell: Survival, as noted, is job one. Think of the next 18 months or so as the new abnormal, a time to shed old habits while building healthy new ones. And don’t count on someone to throw you a lifeline; create your own.

Bad habits and must-do’s

All startups will need sufficient cash for at least a year and a half. Fundraising, however, should not be a priority. In this climate, valuations will be lower than usual, so you’ll end up giving more equity for less money.

If all else fails and you do need to raise funds, here are a few tips to avoid down rounds:

Staying lean, innovating under duress

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