What Founders should be asking of VCs during the downturn

TLDR: Founders should be asking for more tangible support right now. Budgeting/forecasting, negotiating better deals with service providers, employment agreements, and option plans.

The recent downturn in the markets has shaken VCs and Founders alike. Capital costs are going up, valuations are going down and the pace of deals is grinding to a halt. Startups are scrambling to extend their runway and those that were fortunate enough to raise before this downturn are thinking deeply about how to cut costs or make acquisitions. In light of these dynamics, Founders are turning to their VC partners for more tangible support right now. This is consistent with other downturns I’ve experienced during my tenure as an early-stage VC and I’ve noticed some consistent patterns emerging in terms of what types of support Founders are (or should be) looking for from their VCs.?

Firstly, additional scrutiny is being placed on budgets and forecasting. High-burn rate startups are figuring out how to shift from high growth high expense to a more always-alive model. This means pausing hiring, reducing compensation packages and negotiating contracts with service providers. For many Founders who have never experienced a slowdown of this magnitude, working through these many moving parts can be complicated and difficult. Turning to seasoned venture partners who have seen this story before can save a ton of time and effort by leveraging their wisdom about what’s worked in the past. I’ve personally helped dozens of startups review their budgets to identify areas for cost saving. Oftentimes, I’ll find that there are some easy savings to be had by negotiating better deals with service providers right off the bat. For the companies servicing these startups, they’re willing to take a temporary hit to revenue in order to keep the customer long-term, so I highly encourage every founder to review your list of providers and reach out for a temporary cost reduction. You might be surprised at how willing they are to work with your budget, it's probably already happening to you with your customers.

Once this exercise is complete, providing assistance on forecasting is something Ripple portfolio companies have found extremely valuable. If you haven't created a scenario budget for your Bull, Bear & Best case outcomes, do that now! Once costs are reduced, the next immediate question is: “at what point can we begin spending on growth again?” That answer is different for every company, but being able to identify milestones, whether they be revenue, user growth, partnerships or any other metric can be extremely important for road-mapping the future for Founders.?If you are looking to raise capital with existing investors or new ones, it's wise to start those conversations now before setting out on achieving those milestones to make sure you are aligned with investor expectations. No worse surprise than arriving at a new destination only to realize it's the wrong one!

Make sure your company culture and employee expectations are well documented and discussed during these times. Employees are the fuel that keeps everything moving, especially in these difficult moments. Make sure to continuously reinforce the company vision, culture and expected outcomes in order for employees to feel connected to the company and their own professional journey along the way with no surprises. If you need to top up employees with option grants to keep leaders invested in the business, now is the time to do that. If you raised capital last year and haven't hired senior leadership yet due to the competitive hiring market, now is the time to do that as well.

For first-time Founders, you should be relying on your VCs, advisors and most importantly other CEOs from your VC network who have experienced these times before for advice. It is important to remember, you are not alone on this journey. No matter the state or scale, all CEOs are facing similar challenges and have probably walked in your shoes before. So put yourself out there and ask for help, your investors are supposed to be your partners after all.

As the philosopher, George Santayana wrote, “Those who cannot remember the past are condemned to repeat it.” Don't be a founder that repeats it!