Venture capitalist Jason Green has been around the tech industry for well over two decades, long enough to experience the dot-com boom and bust as well as the housing crash and subsequent 11-year bull market.
While the COVID-19 coronavirus crisis is a very different kind of emergency, Green has learned enough about how financial markets work to know that companies, particularly start-ups, have to fundamentally change their strategy. Green's advice to portfolio companies varies somewhat depending on how far along they are, but he has one consistent message: scrap your 2020 guidance.
"I'm proactively telling everyone to forget their year plan," said Green, co-founder of Emergence Capital, in an interview over Zoom this week, following California Governor Gavin Newsom's shelter-in-place order. "Keep a close eye on what's happening and adjust accordingly."
Stocks plunged on Friday, closing out the worst week for the Dow Jones Industrial Average since the 2008 financial crisis. With restaurants and hotels shutting in California and New York, and Washington lawmakers debating over how to address the public health and economic crisis, there's no doubt that businesses of all shapes and sizes are going to suffer.
Of all the places to invest, Emergence may be in the best position. The firm has a long history in cloud software, investing early in Salesforce and later Box, Veeva Systems, Zoom and Bill.com. In general, cloud-based software companies sell digital subscriptions and so have lower costs than companies that sell physical or packaged products.
What costs they do have are often tied to sales and marketing — getting the product into the hands of users. Companies that can slow down growth to focus on profitability should do so, Green said. Others that don't have sufficient revenue coming in the door have to make some hard choices.
"It's either cut costs or raise money, extend the runway and live to fight another day," said Green.
Green likes to use Veeva as an example of a company that was built during hard times and turned into a screaming success. Veeva, which makes software for the health-care and life sciences industries, was founded in 2007, raised $4 million from Emergence as the housing crisis started to pick up steam in mid-2008, and was able to operate profitably from its early days. Even after the recent market plunge, Veeva is still worth almost $20 billion.
"It's one of the most capital-efficient, leanest best-run companies we ever invested in," Green said.
There's no telling how bad the current economic situation will become as confirmed cases and deaths in the U.S. continue to mount. With so much uncertainty, Green says companies need to concentrate on what's immediately in front of them. Some may have to raise money at less favorable terms than in the past just to get cash in the bank and to make payroll.
"I don't think it's a good idea to have a long-term plan," Green said. "It's good to think about the next quarter and then reassess literally every few weeks."