By Jeff (J.D.) Davids for Golden SeedsJune 25, 2020
Jeff (J.D.) Davids recently participated in a Golden Seeds Trend Talk, a series of discussions that are relevant, instructive and often inspiring, about how angel investors can help companies survive COVID-19 and thrive as the economy restarts. During the discussion, J.D. shared best practices and lessons learned from 25 years in the trenches of venture capital and entrepreneurship. He’s eminently qualified to offer such advice, having launched eight VC-backed startups, three IPOs and three acquisitions. He’s also mentored hundreds of startups and chalked up more than $1 billion in completed deals. Here’s a summary of the wisdom J.D. shared with Golden Seeds.
COVID-19 is an event we didn’t see coming, and it will have a lasting effect on all businesses. As we struggle to adapt, it’s helpful to look back at other Black Swan events to see what we learned from them and what we can predict based on those experiences.
We’ve lived through two major disruptions since the turn of the century: 9/11, which had a major impact on lives and finances, and the Great Recession of 2008, when the economy melted down. Those events taught us to expect fallout on many fronts: event cancellations and reduced travel, a big hit on revenue, and a pause in fundraising.
There are three keys to successfully navigating the storm of COVID-19 as an angel investor: creating a situation report, recognizing your roles and responsibilities and creating a game plan.
Creating a situation report
Let’s start with the situation report. This is all about understanding what is going on around you and uncovering where you as an investor can help your companies and CEOs. Ask yourself:
Angel investors need to know the state of their entire portfolio, which is often difficult. You have to visualize the worst-case scenario, look past it, then build your action plan and get to work.
Defining roles and responsibilities
Understanding your roles and responsibilities is essential. Your role during this time is to gather information from your CEOs, ask good questions and ultimately be the calm, steady go-to resource for your companies. In order to do this, you need to ask CEOs three key questions:
When speaking with CEOs, you must be the voice of reality. Be honest about cash flows and problem-solve with the team. Help them balance staffing decisions and other expenses, with the goal of surviving the pandemic. Assist them in setting clear metrics and expectations. You may have to help them make tough choices, including a possible sale or merger.
Unfortunately, some businesses may not make it. If a shutdown is inevitable, support the company, plan an orderly wind-down and help identify new opportunities.
Lead your clients to discover solutions. Remember, leaders are built during times like these. Your focus should be on maintaining long-term relationships. The hope is that you will continue to build great companies with these entrepreneurs.
Build a game plan stressing survival
A detailed game plan is a must. During uncertain times like these, it’s all about cash flow and survivability. The first step in building a strategy is to take a portfolio view. Look at all of your companies and adjust 2020 forecasts based on revenues and expenses, hiring and layoffs and government assistance.
Create a KPI dashboard that shows the months of cash in the bank, weekly revenue and pipeline, weekly expenses and government benefits. Determine the best approach to managing cash. Can your companies stretch accounts payable, get prepayments from customers and/or file for and receive government assistance? Do they need to sell the company to survive?
When analyzing your portfolio, take a triage approach to determine a company’s viability.
Who will survive, and who won’t? How many months of cash do they have in the bank?
Where can assistance make the biggest impact?
Strive to be constructive. Offer help with your clients’ customers. See if you can help CEOs find new opportunities. If companies have relaunch plans, help them figure out how to stimulate new customer purchases and start to plan those campaigns now.
Focus on potential winners
If you’re looking to invest in companies now, focus on industry sectors that may benefit from the current situation, such as online education, online conferencing platforms and telehealth.
Remember things change quickly. As a leader, you need to be well informed and ready to adapt.
Among the data that investors should be tracking are the number of COVID-19 cases trendline, earnings reports, GDP Growth, S&P 500 / DJIA, P/E Multiple rise, fund flows into public equities, sector rotation, M&A activity and IPO activity.
There’s no question these are challenging times, but we’ll get through this as we did past crises. Your job is to serve as the steady hand on the tiller, help CEOs frame the challenges and inspire collaborative problem-solving. Communicate with your clients, offering constant updates with full transparency and a dose of empathy. Above all, don’t panic—and don’t let your CEOs panic, either. The key is to remember the basics: Stay informed and keep your eye on the prize.