YC advises the founders to "plan the worst" in the midst of market collapse - TechCrunch

YC advises the founders to “plan the worst” in the midst of market collapse – TechCrunch


Y Combinator, a leading manufacturer of Silicon Valley, advises the founders of its portfolios to “plan the worst” as startups around the world try to overcome a sharp turn after a 13-year bull run.

The investment firm – whose early support includes investments in Dropbox, Coinbase, Airbnb and Reddit – this week proposed to startups to reduce their spending and focus on expanding their runways over the next 30 days. For those who do not have the path to “reach the baseline alive,” the company said in a letter entitled “Economic Downturn,” YC strongly suggests that they consider raising money.

“If your plan is to raise money in the next 6-12 months, you may be withdrawing money at the peak of the downturn. Remember that your chances of success are extremely low, even if your company is doing well. We recommend that you change the plan, “it said.

A note from YC, which supports hundreds of young startups a year, is a signal that the market downturn, which has significantly reduced the value of a large number of technology companies in recent weeks, including giants such as Shopify and Netflix, is slowly declining. – a universe of startups.

TechCrunch received a letter this week from YC to the founders of its portfolio. You can read the full email below.

Greetings to the founders of YC,

During this week, we did office hours with a large number of YC companies. They reached out to ask if they should change their spending, track, recruitment and funding plans based on the current state of public markets. We have told them that the economic downturn often becomes a huge opportunity for founders who quickly change their minds, plan ahead and ensure that their society survives.

Here are some ideas to consider when creating your plans:

  1. No one can predict how bad the economy will worsen, but things are not looking good.
  2. The safe step is 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 reduce costs and extend the track over the next 30 days. Your goal should be to get into Default Alive.
  3. If you do not have a track to reach the baseline alive and your current investors or new investors are willing to give you more money right now (even under the same conditions as in the last round), you should take it.
  4. Regardless of your ability to raise funds, it is your responsibility to ensure that your company survives if you are unable to raise money for another 24 months.
  5. Understand that the poor performance of technology companies in the public market significantly affects venture capital investment. VCs will have a much harder time finding money and their LPs will expect more investment discipline.
    As a result, during an economic downturn, even the highest venture capital funds slow down their capital distribution (smaller funds often stop investing or die). This causes less competition between funds in trades, resulting in lower valuations, smaller wheel sizes and much fewer completed trades. In these situations, investors also reserve more capital to secure their most efficient companies, which further reduces the number of new financing. This slowdown will have a disproportionate impact on international companies, companies with large assets, companies with low margins, hardtech and other companies with high burning and long-term profit.
    Note that the number of meetings that investors attend does not decrease in proportion to the reduction in total investment. It is easy to be fooled into thinking that the fund is actively investing, even if it is not.
  6. For those of you who have founded your company in the last 5 years, ask what you consider to be a normal fundraising environment. Your fundraising experience was most likely not normal and future fundraising will be much more difficult.
  7. If you’re after the A-Series and the pre-product market fits, don’t expect another round to happen until you obviously hit the product market. If you’re ahead of A-Series, the A-Series milestones we’re posting here may even turn out to be too low.
  8. If your plan is to raise money in the next 6-12 months, you can raise money at the peak of the decline. Remember that your chances of success are extremely low, even if your company is doing well. We recommend changing the plan.
  9. Remember that many of your competitors will not plan well, will maintain a high level of combustion and will find that they are in hell until they try to increase their next round. In an economic downturn, you can often gain significant market share by staying alive.
  10. For more ideas, check out this video we created: Save your startup during the economic downturn

The best,

YC

“PS: If for any reason you think this report doesn’t apply to your company, or you need someone to tell you in person to believe it … please review your beliefs every month to make sure it is not so. Expel your company from the cliff. Also, don’t forget that you can always reach out to group partners, ”the letter adds.



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