Presentation from call organized by inovo for startup founders on how to deal with crisis during coronavirus lockdowns

1. Founders in times of Corona

2. Meet our team

3. “Our capital position at the moment is
strong"
Lehman Brothers CFO,
five days before the bankruptcy

4. Agenda
1. Where we are and what does it mean for the economy (Maciej)
2. Crisis 2007/2008 and today (Ariel)
3. Priority actions to be taken (Michał+Damian)
4. What are/will be funding options (Michał)
5. Opportunities (Michał)

5. What are we dealing with?
COVID-19 SARS Swine Flu Bird Flu
When? 2020 2003 - 2004 2009 - 2010 2014 - 2017
confirmed
cases
350k+ 8k 750m - 1.4bn 1.6k
fatality
rate
0.5 - 5% 6.6% 0.01 - 0.08% 40%
infectivity
rate
2 - 3.5 3.0 1.3 - 1.7 0.03 - 0.4

6. 20%* of GDP and 30%* working
population is directly impacted
Population
lag
Tier 0Tier 1Tier 2
Companies
lag
Travel & tourism
Restaurants
Offline entertainment
Offline retail
...
unemployment or wage
reduction
shopping habits adjustments
companies
providing
products &
services to Tier
0
companies
providing
products &
services to Tier
1
40-90% drop in
revenue
?? early estimates of US peak
unemployment rate range
between 9-20%
approximation based on the US economy

7. Equity markets experience freefall and
cash outflow ...
NASDAQ -27% MoM S&P500 -30% MoM Dow Jones -33% MoM
as of 20/03/2020, 19:50 CET

8. … and bond market experiences it as
well
(weekly)
10 worst US bond market selloffs

9. Governments will “do whatever it
takes” and much faster than ‘08-09
Poland’s stimulus is said to
reach 5-10% GDP

10. China = how will we look like in 3
months

11. We advise to account for at least 3-6
months economic slowdown
● big chunk of global economies are currently under lockdown with governments
preparing unprecedented stimulus
● most of countries still experience increase in new daily cases of ~33% (doubling
every 2-3 days)
● some countries seem to undertest their population and/or underestimate
coronavirus impact (eg. USA, UK)
● China’s case shows ~60 days of extreme(!) lockdown needed to contain the
coronavirus spread and restrictions still apply
● lack of widely available fast testing, drugs and vaccines make fast recovery
unlikely
● if recession hits general economy, both customers and business will adjust their
spending habits

12. Crisis 2008 vs. Today
Ariel Finkelstein - a been there done that guy

14. Demand
during
crisis
Demand after crisis
Higher
Lower
Growth momentum
increased
Slow recovery
to old levels
Grocery and household
goods
Mobile and fixed
broadband
Telecommunication
Distance learning
Online entertainment
E-commerce
Telecommuting tools
Healthcare
Bounce back
to old levels
Restaurants & food
Transportation
Tourism
Offline entertainment
Retail and commercial real
estate
Automotive
Apparel & beauty
Retail health
Household appliances
Insurance
Digital first businesses in certain industries will benefit in the long-term
thanks to mindset and behavior changes…
… but you need to survive in the first place
source: framework based on Bain & Co.

15. Priority actions
Priority Area Action
1. Model &
prepare scenarios
for demand
reduction
● stress-test your business model assuming different scenarios (0% new
business, x% drop in revenue, etc.)
● develop a plan to have at least 12 months runway
2. Enhance labor
productivity
● remote work management (simply having Slack is not enough)
● shift resources to highest value use - new roles in the organization
3. Cut costs &
optimize cash flow
● cut non-core expenses,
● salary cuts and lay-offs
● Get cash into the business
4. Recovery
planning &
adjusting
● prepare recovery plans
● Look for new sales sources

16. 1. Model & prepare scenarios

17. Impact on your business (1/2)
Type of business Expected impact Cases documented
Marketplace for
services requiring
physical contact
50-100% drop in lockdown time 60% YoY revenue drop in US
restaurant visits
Enterprise targeting
SaaS
No sales or longer sales cycle = slower
growth
Enterprises will cut costs = potential
churn
Time for product discovery - chance to
build top of funnel
All conferences are off = no
leads top of funnel, contracts
take longer to close
Revenue impact will be seen in
1-2 months

18. Impact on your business (2/2)
Type of business Expected impact Cases documented
SME targeting SaaS Cash flow issues of your clients
higher churn
quick implementation of tools
impacting profitability
According to goldman Sachs
study median SME has 28
days cash buffer
E-commerce and software
for e-commerce
Growth in new customers
(people go online)
Growing penetration
Decline in demand in midterm
30-50% population buys
online more frequently (Italy
and China)
Services used by people
during lockdown
Crazy growth today, should stay
at levels higher than pre-crisis
after Covid-19
See zoom stocks or try to
order groceries in Warsaw
(Lokalny Rolnik 500% week
on week)

19. Why your clients will stop paying
• A big profitable company’s monthly P&L
PLNm Pre Corona Today
Revenue 100 5
Var cost 45 10
Fix cost 45 45
EBITDA 10 -50
Cash 25
Key questions:
● Are you critical for your client?
● Which clients can default?
● Are your payment providers prone
to default?

20. The fact you don’t see revenue drop
last week doesn’t mean you won’t
see it next month

21. 3.Cost cutting
1. Do It NOW
2. Cut more than you initially planned
3. Ways to cut costs:
a. reduce to ¾ or ⅘ Full time equivalent and compensation proportionally
b. Close full business lines/units
c. Cancel all non critical tools (employee benefits - yes even “owocowe
czwartki”!)
d. Close all channels that are less profitable/ borderline - your LTV will be worse
than historically
e. Get funding from your top employees
i. paycut to C-levels and VPs compensated with stocks
ii. offer very attractive valuation

22. 3. How to optimize cash flow?
1. Stop paying for non critical things and delay payments:
a. do precise payment plan
b. approve all outgoing transfer
c. be very aggressive - it is about survival
d. renegotiate later payment / installment
2. Get some external money in! Any money at any valuation - 12
month runway is a must.
a. if you can take debt - take it. If you have one - renegotiate payment plan.
b. get upfront payments - offer big discounts.
c. explore all governmental aid - we will see government stimulation the world has
never seen.
Companies go bankrupt only for one reason - if they run out of cash!

23. 4. Sales / lead options
✓ Consider going downstream and twist your product to impact
clients profitability in the new circumstances
✓ Consider changing your price to pure pay as you go
✓ Outbound - BDRs should work these days (+account based
marketing), LinkedIn works well for some industries!
✓ Top of funnel focus - people have time for product discovery
✓ Digital first:
a. Webinars can have good attendance again
b. Online conferences - try to participate or even facilitate
c. Prepare for sales video calls - visual materials (not an old
.ppt presentation), limited time with hard stops etc.

25. Funding options - VC
• Assume freeze in funding for 12 - 18 months
• VCs will be super selective
• If there is funding - valuations to drop significantly
(assumed 30-50%)
• VCs are super busy with current portfolio and
allocate big chunk of capital for follow-ons
• Deals in progress might not happen
• VCs will be very slow down (uncertainty, potential LP
issues)

26. Trends - example of what is on the
radar

27. Trends

29. How VCs divide companies?
Source: link
No attention needed
● cash in the bank, burn rate under control (usually
recent large seed rounds, or profitable companies
with lots of cash at hand, activity not too much under
pressure given the circumstances)
These are the lucky ones in this crisis and they don't
require immediate attention.
Critical / fatal state
● No more or little cash
● sales tanking
● no chances for funding
It is fight for survival
Great businesses at the end of financing
cycle
● Strong fundamentals (team, product, growth, cash
burn)
● End of a financing cycle, need financial support and
to reduce their burn rate (25% of the team?)
Good but not top
● Strong assets (team or product), but traction below
● Need to reduce 50% + of their costbase
If enough karma & an early market rebound, some will
make it through.

30. Opportunities
People and companies moving to digital across the board
(e-groceries, remote work, telemedicine)
Typically after crisis tech wins, tech deals better with crisis
Ones who survive can grow quickly afterwards
Employer market again - top talent will be available
CEE has cost advantage over competitors (also ForEx)

31. Recommended homework :)
1. How will you survive 3 months with zero revenue (zero
cash in)?
1. What should you do to have 12 months runway if you
have a 50% drop in revenue for 6 months? (adjust
revenue drop to your business model)
1. How can you win after it is finished?

32. www.inovo.vc
remote office :)
michal.rokosz@inovo.vc
Stay safe, Stay healthy