'Consider a pivot': VCs reveal the top advice they're giving tech startups amid the economic downturn

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Zooming In

A deep-dive into one big theme or news story every week.?

In 2008, as the financial crisis was forcing the markets into a meltdown, Lehman Brothers was going out of business, and the government was pouring billions into financial institutions, VC firm Sequoia issued this gloomy report to its portfolio companies.

While no VC firm seems that panicked – yet – the IMF thinks that a recession is likely in 2023, set to affect roughly a third of the global economy. And investors, as a result, have started preparing their portfolio companies.

As share prices of public tech companies get hammered and VC funding dries up, the message from venture investors to startups is to extend their runway as far as possible and to do more with less.?

“Unnecessary hiring leads to high burn, and it bursts during the recession time with 18,000+ layoffs in 2022,” commented Mohammed Zakkiria. A, co-founder and partner at early-stage micro VC firm ZAR Partners. “Conserve cash and increase revenue streams to extend the runway.”

Raphaele Leyendecker Fabbri, managing director at Techstars , echoed Zakkiria’s point, saying that sustainability was the need of the hour, as investors are likely to invest in companies to support additional growth, versus keeping companies afloat.

For Lonne Jaffe, a managing director at Insight Partners , it’s more important to prioritize revenue quality than growth or profitability in such times, because if you can get a customer to sign a contract that guarantees recurring revenue, you have a wider moat.

“Growth or profitability…are both blunt instruments,” he told me in this week’s edition of #VCWednesdays. “They don't really capture what you're trying to accomplish as a startup, which is high gross margins, recurring revenue with high customer retention rates and rapid expansion within customers.”

George Mathew , another Insight Partners managing director, said startups that hone in on product-market fit as their true north will be better able to tide over a recession, as their demand likely won’t dip.

“Products that are built with love/fervor by key personas will not [be] pried out of their cold hands (even in the midst of a recession),” he commented.

Ganas Ventures ’ Lolita Taub is urging her founders to be resilient, and manage not just their businesses but also their own mental health, focusing on the things they can control. As for their companies, in addition to managing their burn rate, founders shouldn’t hesitate to reevaluate their business models, she said.

“Consider a pivot,” she commented. “If your current business model isn't working, you might want to switch to one that will do better during a recession.”

See what other tips VCs are giving their portfolio companies and share your own advice here.

TechTok?

Catch up on the tech headlines you may have missed this week and what people are saying about them, and join valuable member conversations on LinkedIn.

• The FTC proposed rolling back noncompete clauses that bar employees from taking jobs with rival companies or starting new ones without risk of being sued. Catch up on what the proposed rule could mean for tech here.?
• Tech continues to be roiled by layoffs, with Salesforce planning to trim employee numbers by 10%, amid concerns over the current economic climate. In a regulatory filing this week, the software giant said it hired more people than it needed during the pandemic and had already been hit by changes in customers' spending habits.?
• It’s bad news over at Amazon too, with CEO Andy Jassy saying this week that it will let go of more employees than it initially expected. While roughly 10,000 cuts were estimated in November, over 18,000 workers are likely to be impacted, most within Amazon Stores and the People Experience and Technology Solutions team.?
• Apple’s market cap sank below $2 trillion for the first time since May 2022 this week. The company has fared better than Amazon, Meta and other tech firms in recent months, but its iPhone supply took a hit over the holidays because of COVID shutdowns in China.
• Digital password-management company LastPass revealed in December that hackers had cracked into its database and obtained copies of millions of customers' password vaults — the cybercrime "equivalent of hitting the jackpot.” Here are the lessons from the hack.

Movers and Shakers

Here’s keeping tabs on key executives on the move and other big pivots in the tech industry. Please send me personnel moves within emerging tech.

• Over the holidays, Google hired Mira Lane , a longtime Microsoft executive who specializes in the ethics of artificial intelligence. She will join a team focused on technology and society at the company.
• Supply-chain tech company Flexport has hired Amazon Web Services executive Teresa Carlson as its president and chief commercial officer.
• Twitter's head of product and engineering Behnam Rezaei, one of the last-standing long-term executives at the company, announced that he had left.
• AI-focused VC firm Glasswing Ventures has closed its second fund with $158 million in capital commitments.
• VC firm Insight Partners is planning to raise over $100 million to back venture capital funds led by diverse managers, according to The Information.
• Austin-based VC firm Ironspring Ventures has hired Colleen Konetzke as principal, Stephanie Volk as head of platform and David Perretz as head of finance.

This Week in Tech

A weekly advent calendar of tech history from the archives.

This week in 2004, Spirit, one of NASA’s Mars Rovers, landed successfully on the Red Planet. Spirit lasted 20 times longer than its original design, remaining active until its final communication to Earth on March 22, 2010.

ICYMI

Here are other top stories of the week from beyond LinkedIn in the broader world of tech.?

• Buzzy startup OpenAI , maker of the ChatGPT tool that's taken the tech world by storm, could soon be valued at around $29 billion via a secondary stock sale co-led by Founders Fund and Thrive Capital .
• Speaking of ChatGPT, LinkedIn parent company Microsoft plans to use the artificial intelligence behind the tool to launch a version of its Bing search engine to answer search queries.

索尼 and Honda announced their EV joint venture Afeela at CES this week. The automakers plan to ship their first vehicle in North America in 2026.?

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