SFF GREEN SHOOTS SERIES - KEEPING THE CASH FLOWING: THE VC PERSPECTIVE
April 3, 2020
Many of us are working from home and feeling isolated from the broader FinTech community. At a time like this, we need to come together and support each other. On 3 April 2020, we kicked off our weekly virtual meetups covering topics from COVID-19-proofing your business to taking care of your mental health. We hope the series is as practical and useful to you as possible and provides some light relief during these temporarily dark times.
At our first session, we had the privilege of hearing from seasoned VCs Melissa Guzy (Arbor Ventures), Yinglan Tan (Insignia Ventures Partners) and Hian Goh (Openspace Ventures) who drew on their experiences of surviving crashes and shared advice on COVID-19-proofing your business. We are heartened by the response to the session and hope the series will continue to benefit more in our community – a big thank you to the VCs and startups from around the world who joined us to share and learn from each other.
Here are some resources from the session:
- Q&A with Speakers: below
- If you missed the session or like a replay, you can sign up for a free SFF x SWITCH Go account to watch the session under our SFF Green Shoots playlist.
- Want more? Check out upcoming Green Shoots sessions on our SFF website here.
Let us get through this together and be stronger, when the green shoots start to appear.
Q&A with Speakers
Question: With the reduced barriers to entry for some business models, what do you think about helping founders test their model against the new assumptions and think through potential pivots? Are there founders doing this well yet?
Hian: I think that’s the correct attitude, which is the first thing you have to admit to yourself that if you have been hit by COVID-19, that you now have lost product market fit, and you need to think of new things to sell and provide, or new ways of providing your existing products. Education and food comes to mind, where you have to pivot to online learning or food delivery. And it does not have to be complex. Over the weekend, I did e-learning with my kid. It was a video and a book which we just worked through. Don’t over-engineer. MVP is perfect.
Melissa: Companies need to innovate and iterate in all market environments and now is not different. If you have an idea for a new model then test it aggressively and prove out the financial metrics that it can work and scale without needing a ton of new funding. Startups globally are taking this approach already. Acting decisively is important.
Question: What are some of the long-term implications to startups based in Singapore?
Hian: I think the long-term implications is that if the capital providers and the government stay firm and committed to supporting startups, Singapore will be known as a great place to start companies, and our reputation will increase around the world. If not, people will abandon the country and start companies elsewhere.
Melissa: The long-term implication for all startups is that it could be a challenging road ahead. There will be much more focus on business models, getting to cash flow break even and economic viable scalability. Survival will be key regardless of your location.
Question: What are practical methods for securing cash flow besides “delaying” payment?
Response: Collect all your receivables and also try and get pre-payments. If you are in the B2C business, suggestions include pre-buying vouchers and selling forward packages.
Question: Melissa: what’s your view on Hian's comment of cash flow management by being aggressive on payment schedules? To elaborate: what would you advise your portfolio investees that are on the supplier side, possibly facing the brunt of longer payment schedules, on cash flow management?
Melissa: Everyone has to plan on both sides, companies should negotiate their payables or exchange for equity but the flip side is that the recipient will also be impacted and therefore companies should plan for longer cycles on collections.
Question: What Hian mentioned to secure cash flows seems to be the defensive part of the strategy in such times. What would be the equivalent offensive strategy during this time? Should founders use peace time to build audaciously preparing for the world to turn back on?
Following up, specifically to Melissa - what would you advise blockchain startups to do during this forced downtime?
Hian: Some of our portfolio companies who are well funded are now talking to peer group companies who previously may not be open to consolidation. See if you can acquire or merge on an all-stock little cash basis.
Melissa: Companies need to focus on their end markets which is not any different for a Blockchain startup. If the end market has changed then consider a pivot, if not then stay the course.
Question: As government funding goes into the emergency now (not saying this is wrong, in fact this is the only thing to do now), but it is undeniable that same time now might not be made into say the long-term investments (not only investment in high tech/ innovation, but also say education for the next generation). What’s your opinion, as a market participant, on how governments could better invest into our future?
Hian: The Singapore government already in my opinion decided to create an ecosystem over the past 10 years. So there is long term capital formation. VCs who will be here for a long time etc. So honestly the government focusing on the short term shock is correct because they have been focused on the long term build over the past 10 years already.
Question: What are the most promising niches, sectors for starting a business in the current environment?
Hian: Online learning, food delivery, supplying of healthcare. But the truth is that this is not a long-term change. There is a difference between saying in 5 years’ time we are all video conferencing and remotely working, and that this trend is temporary. If anything, the crisis may accelerate adoption. Ultimately the long term trends are accelerated, or else it will just revert to practices before the crisis.
Melissa: e-Commerce will boom globally, software products to enhance productivity and within FinTech we will continue to see an increase on anti-fraud, anti-money laundering, data-related startups, payments, etc. The world won’t stop innovating.
Question: In terms of cutting costs, how much should we be paying lawyers to help us bridge financing and priced rounds?
Hian: As little as possible! Seriously, the pricing should be the same. Are people taking advantage of the situation?
Question: How can a FinTech startup in Egypt cooperate with a FinTech startup in Singapore?
Melissa: It will be challenging to do cross border deals during this period. Companies will need to focus on their home markets.
Question: What kind of new businesses are you writing cheques for in current environment?
Hian: Broadly, I think telemedicine, online learning, online media streaming - these are very interesting right now.
Question: Can a sole proprietor raise cash? Must it be a partnership or company to raise cash?
Hian: If the question is to raise venture capital and not raise cash, then yes: company incorporation is, I would say, the minimum requirement.
Melissa: A sole proprietor can raise cash.
Question: Do you think there is any appetite from venture debt providers for leveraged acquisition plays at the moment? Especially for top tier founders who are looking to aggressively grow in their markets and acquire some bigger players.
Hian: Venture debt is not designed for leveraged buyouts. The ratio of venture is usually it’s a lower proportion of the equity. So I would say my gut feel is little to no appetite.
Melissa: Most lenders will be cautious but I do agree some roll ups will make sense. There are some venture firms that will help facilitate these types of transactions.
Question: Post crisis - When markets eventually recover, and flood of capital comes back to "risk on" assets generally, how can startups best prepare themselves for fundraising and other opportunities that might emerge? Any other ways in which you think startups will be affected once the recovery takes hold?
Hian: A very good question. Actually, yes. Keep conversations going with your strongest relationships. When they finally decide to pull the trigger, make sure you are the first to receive the monies. So the best way to prepare for that eventuality is to keep relationships warm but do not try to strong arm.
Question: What are your thoughts on short term versus long term FinTech trends, in a post-COVID-19 world?
Hian: One thing if you are lending money: your assumptions on the supply as well as credit quality is completely wrong.