How Startups Survive the COVID-19 Economic Crisis
By Dan Rosen
Being trained as a scientist, and having lived through several investment cycles, I’ve been asked to share
my perspective on the financial impact of the COVID-19 pandemic on startups.
I firmly believe that the human and societal impact of COVID-19 will be extreme, even though we are at
the early stage of this pandemic. If we, as a society can pull together, enact social distancing and other
means of delaying the spread of this virus, we can come out of the other end of the tunnel. Most
people really don’t understand the concept of exponentials – it is not in human nature to grasp what
As a scientist (a biophysicist at that), this kind of modeling is something I was trained on early in my
career. At this point, suffice it say, that we cannot prevent COVID-19 from spreading and our best hope
to minimize the impact is to (a) lengthen the time it takes to effect a substantial portion of the
population; and (b) prepare for the impact that will have. The key right now is to ensure that our
medical system is not overwhelmed by this impact.
In 12-18 months, I expect that we will have a viable treatment for those with the disease, a working
vaccine and that a large enough percentage of the population will have developed immunity through
recovering from being exposed to the virus. The combination of the herd immunity and a vaccine for
the most vulnerable will potentiate the impact, provided that we can wait it out through mitigation
measures in the meantime.
I went through this detail because the depth and timing of the disruption will have major impact on the
startups we support and fund. A deep and shorter disruption might actually be more severe for both
our society and our companies, so let’s pray that our remediation response works.
For startups, this will be a particularly difficult time. In the recessions of 1982, 2000, and 2008, funding
for startups dried up. While many have heard me say that great startups are often created during
market downturns. Sometimes, easier said than done. So here are my suggestions:
1) Survive. This is pretty obvious. Is you don’t survive, there is no upside. So all of the strategies
below are about survival. It is time to put aside the wonderful plans to become a huge company
with world-beating products. None of this matters if you don’t survive.
2) Cash is king. Startups don’t generally die for a lack of ideas. They die because they run out of
cash. Put in place a plan to conserve cash. Be aggressive in this plan; early action will be much
more impactful than later action. Have at least 12 months of cash on hand, because it is likely
that is what you will need. Even if the COVID-19 crisis resolves itself much sooner than that, the
turmoil left in its wake will persist, particularly for startup.
3) Forget about raising money. While investors might have cash to invest (especially VCs), the
sudden downturn in the market, coupled with the disruption of almost all business as usual, will
make VCs pull back for a while. Assume that this pullback will be till after the COVID-19 crisis is
over and add a few months to that for them to get back on their feet. M&A will dry up; if you
were in discussions last month, expect that nothing will happen until this crisis ends. If you are
lucky, you might get your existing angel investors to help carry you a bit, but expect it to be
really costly and only if you have a plan to make the money last a long time. And, as I believe is
always prudent, communicate well with you shareholders, giving them the bad news and the
4) Revenue is likely to be curtailed. If you are counting on contracts in the pipeline to close, you
shouldn’t. Most big companies, government clients, and especially small and medium
businesses will also go into survival mode. Unless you are supplying a product or service that
they consider absolutely mission-critical, you should expect that revenue will be deferred for at
least 6 months and probably longer. If you existing contracts have cancellation clauses, expect
that some will be exercised.
5) Opportunities. If you have a way to shift some or all of your business to be part of a solution to
the COVID-19 problem, stay alert to do so. For example, even as GM is closing plants, they are
looking at how to make ventilators and respirators. While there will be great economic
dislocation that effects small and large businesses, there are still some opportunities, especially
for direct to consumer businesses. People are sheltering at home and online a lot. If you are
selling something that will make their lives better during this difficult period, there are
opportunities. Examples might be things like online learning or classes, online consulting, or
even things that bring a smile in these difficult times. Similarly, any product or service that
makes working from home easier will have a ready market (if your customers can find you
6) Downsize. While this is a really difficult decision, survival is the single most important thing.
Many companies will have to pare back to the essential. Salaries will need to be slashed (as they
were in 2000 and 2008), if companies will survive. I’ve already heard from several of my
portfolio companies that they had company-wide meetings and agreed to 50% salary cuts.
While the pandemic will certainly curtail travel, make that a policy. Cut all contract help that
can be cut. Cut marketing and sales spend until the your customers are back to work and buying
once more. Again, any step that cuts your burn early on, will have a lasting impact on the later
cash balance and your cash horizon.
7) Non-equity cash raise. Look for sources of cash that are non-equity. Think of ways to get
government grants. Explore the SBA programs that have been put in place to help small
businesses. Be creative about finding sources of cash to stay alive, including potentially doing
some short-term deals that help the immediate crunch. These are things that you wound never
have considered doing three months ago.
8) Stay alert for the inflection point. As with almost all things in life, this too will pass. It is hard to
tell what the country and market will look like when this is past, but if your company is alive and
flexible, there will be great opportunities. Watch for it, since none of us can predict when it will
Dan Rosen is the Chairman of the Alliance of Angels, former Director for the Angel Capital Association, and a Tech Coast Angels member. He has a Ph.D in Biophysics from UCSD.