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The Current Crisis Offers a Golden Opportunity for Startups

Opinion

The Current Crisis Offers a Golden Opportunity for Startups

As Covid-19 shatters longstanding practices, venture capitalist Alon Lifshitz highlights three questions every investor should be asking their portfolio startups

Alon Lifshitz | 13:50  04.05.2020
The recent coronavirus (Covid-19) pandemic delivered an unprecedented blow to the startup world, shattering the industry’s decade-long golden age. Companies that were experiencing incredible growth and were planning to hire hundreds or thousands of people and raise hundreds of millions (or even billions) of dollars, now find themselves having to lay off large parts of their teams, making drastic cuts in their expenses, losing a significant percentage of their clients, and facing difficulty securing investors.

Let’s start with the good news: history has repeatedly proven that innovation and creative thinking always win. There is little doubt that technological solutions that enable us to cope with the new reality forced upon us in the best, most convenient, and efficient way, are what will help us overcome this crisis.

Alon Lifshitz, co-founder and general partner at  Hanaco Ventures. Photo: Courtesy Alon Lifshitz, co-founder and general partner at Hanaco Ventures. Photo: Courtesy Alon Lifshitz, co-founder and general partner at  Hanaco Ventures. Photo: Courtesy
We are already witnessing a huge upsurge in online activities worldwide, expediting a naturally occurring process that has been taking place for years. The coronavirus crisis has just forced us to take shortcuts, teaching us to rely almost solely on the virtual world. When examined from this perspective, the current crisis offers a golden opportunity for startups that can present direct or indirect solutions for life during and after the Covid-19 era.

As an investor, the teams you previously backed were granted your funds based primarily on the quality of their personnel, their skills, and the validity of their ideas. During these more turbulent times, investors must keep their faith and confidence in their portfolio without foregoing their right to demand to know exactly what is going on at each company.

As investors in startups and as partners to their vision, it is up to you to help them by providing your knowledge and connections but also by keeping track and ensuring that the company is carrying out the necessary changes. Do not give up on your right to ask questions and demand results.

Below are the three most important questions you should be asking your portfolio companies.

1. Is the company cutting back on nonessential expenses in order to survive the crisis?

If the answer is yes, ask to see the company’s updated financial plans to monitor them and decide whether they make sense and whether they are sufficient. Pay extra attention to the salaries of management and founders, this should give you a good idea as to how serious and committed to the company’s success those at the top really are.

2. Has the company formed a survival plan?

Find out what steps is the management planning beyond cutbacks, And whether it is prepared for the possibility of sustaining operations without a new funding round this year. If such a plan exists, ask to see it. If it does not, inquire why that is.

Did the company re-validate its solution and premise in light of the current crisis?

Every company must be able to explain how its product will suit the post-coronavirus world. Will it work in a reality of social distancing and increased virtual activity? Even if the answers are not clear cut, it is important to realize that it will likely take at least a year until things go back to normal and, in terms of startups, that is a lifetime.

This period is forcing all of us to get out of our comfort zones and be far more engaged and aware of what is taking place around us. When it comes to startups, this means operating with maximum transparency and communicating routinely and openly with the people who put their trust and money in their hands. It is a test of these companies’ mental, business, and leadership fortitude. In other words, your money was never meant to work harder than it should be right now. If it isn’t, you should be suspicious.

 

Alon Lifshitz is a co-founder and general partner at Tel Aviv-based Hanaco Ventures. Lifshitz is primarily focused on companies disrupting the cyber, fintech, marketing-tech, and enterprise software sectors.

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