Breaking News

The president of Sapphire Ventures gives his 5 recommendations for startups to survive the COVID-19 crisis, especially that 'if you can avoid it, don't fundraise now'

Jai Das, president and managing director of Sapphire Ventures, in a photo from 2018.

  • Sapphire Ventures President Jai Das offered 5 recommendations to startups reeling from the coronavirus crisis.
  • The most important one is to explore ways not to depend on venture capital funding. "If you can avoid it, don't fundraise in this climate," he told Business Insider.
  • For startup entrepreneurs who need to raise capital, he also said, "Know your worth. Don't settle for unattractive terms."
  • In general, he says entrepreneurs should minimize risk as much as possible: Hunker down, have patience, and don't pour your personal net worth into a struggling company.
  • Click here for more BI Prime stories.

The coronavirus-driven downturn will make raising capital extremely challenging for tech startups. The president of a top Silicon Valley venture capital firm says startups shouldn't even try right now.

"I would say that if you can avoid it, don't fundraise in this climate," Sapphire Ventures President Jai Das told Business Insider. 

Das, a veteran investor who lived through recent major downturns, leads Sapphire Ventures, the prominent tech VC firm with $4 billion in assets, which has backed such hot startups as Box, Docusign, ThoughtSpot and DataRobot. 

Das said startup entrepreneurs clearly will face a tougher time as the economy reels from the COVID-19 crisis. He offered these 5 recommendations:

If possible, don't try to raise capital now

After a decade of seemingly unhampered financing, the tech venture capital spigot is closing — investors are tightening their purse strings, even as turbulence roils the public markets.

Das says downturns are when startups need to be efficient and creative with how they manage their resources. And that includes planning for a path forward without having to rely on VCs.

"I would rather say, 'Go slow,'" he said. This piece of advice is particularly relevant to enterprise software startups that rely on subscriptions, which guarantee a certain amount of revenue coming in on a monthly or yearly basis. 

"Because of your recurring revenue, you can actually grow much more slowly and raise any money," he said. "If you don't raise, you might not be able to grow as fast. But it's probably okay to grow slowly at this point."

Startups should be worried less about taking or losing market share at a time when the market is down, he said. 

"You raise money thinking that you're going to take market share away, but your customers are not there," he said. "They're not going to make a decision right now. They might all be kind of hunkered down, trying to just survive themselves."

If you need to fundraise, be very patient

Das acknowledged that some startups would need to raise capital. "Maybe you don't have enough money," he said. "Maybe you're going to run out of money in six months. Maybe you'll run out of budget in 12 months."

In that case, he has some good news: venture capital firms, including Sapphire Ventures, are still looking for investment opportunities.

"Everybody is open for business," he said. But he also stressed the need for patience — lots of it — as investors get far more cautious about cutting checks in such a risky environment. 

"It's just going to take longer," he said. "Investors will take a lot more time doing their due diligence."

That also means that you may need to explore other ways to keep going, and "make sure that you have enough runway," he said.

Beware of unattractive terms 

Convincing a venture capital firm to back your startup can be tough in good times. It can be extremely tricky during downturns when funding is tight, Das said.

Startup founders and CEOs must proceed with caution in negotiations, he stressed.

"If you do raise money, don't settle for unattractive terms," he said. "That has already started to happen."

He did not elaborate on that point, but Das said startups are rushing to accept terms that offer VC too many benefits from the deal, such as guaranteed generous returns on their investments that could potentially be harmful for startups in the event of a sale or an IPO.

For these types of investors, he said, "you kind of bake in a return into the investment you're making and there's no risk involved."

"If you do raise money, know your worth," Das said. He said accepting unattractive terms could also backfire.

"It could hurt you later on when the economy's back because you took financing with terms that are not attractive and future investors can ask for the same terms," he said. "You kind of set a precedent by taking these terms that are not attractive."

Don't ever gamble with your nest egg

In exploring ways to stay afloat without venture capital financing, entrepreneurs should resist making risky financial bets, Das said.

The most dangerous one is gambling with your personal net worth. This is a mistake typically made by non-venture backed entrepreneurs, including small business owners who are among the hardest hit by the downturn.

"People may be tempted to say, 'Hey, I'm going to put in my personal net worth into the company," he said. 

It makes sense to invest your personal funds into your startup, he said, "but it should not be from your retirement or your family home, or your children's education, capital that are assets that you cannot risk. That's the worst thing you could do."

Tap into your networks

Finding allies and partners during hard times is also a good strategy, Das said. 

"Use your network," he said. This includes your customers and partners who may be willing to accommodate your business needs or with whom you may be able to cut deals.

Venture firms like Sapphire Ventures have programs to help startups share ideas and "help each other out," he said.

"Leverage your network as much as possible and use them smartly," he said.

In many ways, startups, and the rest of Silicon Valley, will have to wrestle with even bigger problems in the future, Das said. The path to recovery remains unclear as the pandemic continues to take its toll on human lives and the economy.

"Technology investors will always find opportunities to invest in," he said. "But, you know, there's so much pain from the downturn. How do we deal with that?"

Got a tip about a tech company? Contact this reporter via email at bpimentel@businessinsider.com, message him on Twitter @benpimentel or send him a secure message through Signal at (510) 731-8429. You can also contact Business Insider securely via SecureDrop.

Claim your 20% discount on an annual subscription to BI Prime by clicking here.

Join the conversation about this story »

NOW WATCH: Here's what it's like to travel during the coronavirus outbreak



* This article was originally published herePress Release Distribution

No comments