In reading Sequoia’s notable advice to their PortCos. re: the Coronavirus, more questions arose than answers.   Often a good thing.  I have no doubt that these tectonic shifts represent BOTH opportunities AND challenges.  However, for Tech Startups, i surmise that during these Black Swan events, the bar is raised and creates different challenges for a startup depending on the stage (Early vs Late — I’m disregarding mid-stage, growth equity for the time-being),

For an early-stage startup (Seed to Series A), the advantages might be clear:  you have less OpEx and theoretically are more nimble to adjust, (as Sequoia suggests is the key).  Also in tough market conditions, execution is even more important as you have less buffer (less customer spend due to market uncertainty and less access to liquidity) so skillful captains and their teams are able to weather better.  The disadvantages are also manifest:  challenges for fundraising/ less access to liquidity (especially through traditional forms of finance and lending), less willingness for customers to try new services (both enterprise and consumer), and possibly recruiting challenges (i.e. if people are fearful , they are more risk adverse in charting career changes), et al.  In the proverbial “Get on my Startup Bus, there will be less Gas Stations, less people willing to get on, and the map will be murky (i.e. Less market/social proof b/c potential customers are spooked).”

For later-stage startups (Series C onwards), the advantages are clear:  larger balance sheets to “weather the storm” ;  more institutional know-how and experienced personnel to navigate these situations; more/ better data and forecasting tools to be able to cut costs quickly, a patient long-term view and operating horizon.  The disadvantages are more nuanced:  the advantages allowing them to re-trench in tough market conditions, potentially exacerbate the Innovators dilemma, as fear and risk aversion are further amplified.  The potential gains accrued to newer firms competing in more disruptive segments can increase during this time.  One caveat to later-stage startups who cannot/ do not make significant changes to their cost structure:  i.e. any WeWork-like whose core competency has ONLY been one of continued, outsize growth ; the right-sizing of the ship is a dangerous, often potentially fateful one.

As Sequoia reminds us, for those companies who can execute in a time of massive market uncertainty including “Airbnb, Square, and Stripe (who) were founded in the midst of the Global Financial Crisis“, the potential upside is massive.

Be safe, all.