Venture Capital Firms Are Urging Startups To Reduce Costs

The Covid-19 pandemic has changed the business landscape startups are all familiar with.

Venture capital firms are advising start-ups in their portfolios to cut costs and freeze hiring.

Preserving cash for this period is crucial for several reasons.

Data from venture capital analysis firm Pitchbook shows that VCs have more cash than ever, yet they are scaling back their investments to see how the economic climate develops.

The pandemic has created challenges that no startup could have anticipated.

Fundraising during this time will be harder than before the pandemic, so founders need to be aware of alternative funding streams. 

It's time for startups to take a hard look at all the business assumptions made about their customers, markets, product, revenue, and cost forecasts.

Good communication is essential to keep your startup floating. Employees, customers, investors, and purchasers are anxious and worried.

Founders should communicate authentically and with compassion about the situation and the changes made to their business activities so they can win people’s hearts and their support.

With tech stocks cratering through the first five months of 2022 and the Nasdaq stock market on pace for its second-worst quarter since the 2008 financial crisis, start-up investors are telling their portfolios that they aren’t immune to the fallout.

Start-up incubator Y Combinator, which helped to create Airbnb and Stripe, said last week that companies have to “understand that the poor public market performance of tech companies significantly impacts VC investing.”

The general advice provided by venture capital firms is to extend the runway.

While the pandemic might have shuttered startups traditional business plans, new opportunities could open up. 

No matter how severe and disruptive this crisis is, innovation will prevail.

Founders who navigate through the pandemic and cost of living crisis with bold, compassionate, and flexible leadership will not only survive, but also come out of this situation even stronger.

Until the COVID-19 pandemic and cost of living crisis are truly over, survival has to be the imperative focus for startups. Pivoting your business model is essential during these changing times to thrive post pandemic.