In a two-pronged plan, Beenext in its note has divided companies with less than 18 months and more than 18 months runway.
For companies, with less than 18 months runway, Beenext has asked portfolio founders to – stop experiments on new ideas and business lines till their next funding round, focus on monetization for core products, showcase a clear path for profitability and secure longer revenue contracts and freeze new hires. It added that the current funding winter, due to adverse global macros, is likely to continue for the next 24 months.
To its entrepreneurs, the fund said that in the current environment, a flat round (at the same valuation as the previous one) is not bad at all. “Try to top up additional capital to extend your runway. (eg. top up to the previous round). Flat round is not bad at all.”
“The market has changed completely, so we need to be very realistic. Survival is the first priority rather than pricing. So, be
on reducing costs, for example, try procuring free AWS/Google Cloud credits to remove cloud burn; try reducing salaries and compensate heavily in ESOPs (employee stock options). Stop experiments on new ideas and business lines till you raise the next round. Try leveraging partnerships with other companies to sell rather than doing everything alone,” the early-stage VC said in a note to all founders on May 26.
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For companies with more than 18 months runway, Beenext advised its portfolio to reduce burn significantly, and prepare for the worst scenarios on headcount and take necessary actions. It also asked companies to consider an acquihire or pivot, in case they lack a product-market fit.
“Expedite the process to find the product-market fit (PMF) by identifying the right customers and stop spending on non-focus marketing and business development. If you are with less than 6 months of runway and no product-market fit, you may need to consider acquihire or hard reset with only a very core team and pivot,” added Beenenxt.
Interestingly, Beenext’s India portfolio also includes Mfine
which laid off more than 500 employees, a sizable chunk of its workforce, as the company ran into financial difficulties.
Over the past weeks, several venture capital firms including Sequoia Capital and Y Combinator have sent such advisory notes to their portfolio companies, warning them of the funding winter, and asking them to focus on profitability.
Earlier this week, Sequoia
called the market downturn a ‘crucible moment’, cautioning portfolio companies. In the 51-page note, the blue-chip venture capital firm told founders not to expect a quick recovery.
“When capital was free, the best-performing companies were capital-consumptive. As capital has gotten expensive, these have become the worst-performing companies,” Sequoia said in its advisory, adding that the era of being rewarded for hypergrowth at any cost is coming to an end.
Last week, Silicon Valley-based startup accelerator Y Combinator had
cautioned founders of all its portfolio firms, telling them to plan for the worst.
“If the current situation is as bad as the last two economic downturns, the best way to prepare is to cut costs and extend your runway within the next 30 days. Your goal should be to get to Default Alive,” Y Combinator said in a note.
Even Unacademy cofounder and chief executive Gaurav Munjal, whose company undertook layoffs and cost cutting exercise told employees in an internal memo that
“winter is here” and that funding will remain scarce for at least the next 12 to 18 months.