Editor’s Note: Each week Maynard Webb, former CEO of LiveOps and the former COO of eBay, will offer candid, practical, and sometimes surprising advice to entrepreneurs and founders. To submit a question, write to Webb at email@example.com
Q. We executed to our strategy. We have record revenue. We landed great customers. We are right where we wanted to be to raise a round at a great valuation and minimize dilution. Then coronavirus happened, and it now looks problematic to fundraise in this environment. What do I do?
-Founder of a software company for the retail space
Let me start by saying you did everything right. So, I am sorry that you now find yourself in this position. The good news is you probably will get money, the bad news is it may not be on the terms you once expected.
If you were stretching resources out to get to this stage and you don’t have 12-18 months of cash, you will need to raise money now. You will also need to have lowered expectations for the fundraise and for the near-term business opportunities—not because of anything you’ve done, but because the whole economy is in a different place.
It sounds like the strategy you had and the methodology you used worked out as planned. You delivered on the things that were within your control. What didn’t work out was what you couldn’t control; the world got a black swan event and the economy tanked. One of the lessons here, and it’s a tough one, is that we are never fully in control.
But there is hope. You have a solid business and customers who want your product, even in this crisis. Demand isn’t going away in these uncertain times. That alone is excellent news. You’re in a much better position than many companies that won’t be able to survive because their products no longer make sense in this new world. Your only issue is that you need to get funding on terms you may not love. That’s a better problem to have than no one wanting your product or having your market disappear.
What’s your next move? Go to the people who believe in you—whether it’s new investors or current investors and put together a round to ride out this storm. Likely you’ll have to raise at less of a valuation than you once expected. You’ll also have to pitch it differently than you would have some months ago—you can’t paint everything as rosy because of the economic backdrop. The story is now different. Tell the truth.
I am really sorry that you are having to go through this. In sum, lower your expectations, get the money you need to live, and preserve cash to help you ride out the next two years. You have executed well before and you can do so again.