D4 on capital-raising in a crisis
D4 partners have built multi-billion dollar businesses during and after the previous two recessions – the dotcom collapse and the 2008 financial. Here is what we did to keep our startups healthy during sharp downturns.
Cut costs, beginning with C-suite salaries and bonuses for executives. If your team believes in their company's future, it won't jump ship if they know its leaders are sacrificing for success.
Rationalize your sales effort. If you haven't done it yet, tie compensation to revenue received, not TCV (total contract value). Oh, and teach your sales team what a P&L is -- they're the topline, not the bottom line of the company, and product MARGINS make or break a startup.
Market as if you mean it. Your customer base seems to have disappeared; go find them with pull campaigns like ad-word search. Even reduced marketing, especially if your competition has gone quiet, can be powerfully effective in building your brand. Let the world know your startup is alive during the crisis.
Don't stop buying revenue-generating assets. A sharp market downturn followed by a recession is an excellent time for any size player to consolidate at least a part of the market. Good assets being sold by over-leveraged sellers may be particularly attractive.
Don't over-leverage. At a time when most Western economies -- and first among them the US -- are throwing huge amounts of liquidity at the markets, debt is sexy cheap. But borrow wisely – that means, use cheap debt to replace expensive debt or, even better, to buy an asset to boost your top and bottom lines or your startup’s capabilities. But remember: It's breathtaking how quickly debt-burdened companies crash in hard markets.
Don't be arrogant. This is good advice always, but particularly when you may be trying to save your company. The investor you dismissed six months ago may be your salvation today, if he or she still believes in you and your idea.