Early-stage venture capital (VC) firm Beenext has suggested its portfolio companies to have a runway of more than 18 months both through revenue increase and cost reduction as the funding winter is likely to continue for over 24 months.
"Revise and revisit your budget" to adapt to this winter that is the coldest, hardest and potentially the longest, Beenext said in a note sent to its portfolio companies that includes fintech unicorn BharatPe, payments infrastructure platform YAP, logistics-tech startup Loadshare and device management platform Servify.
The VC firm also advised its portfolio companies work together with your existing shareholders and check on their availability of additional capital.
Beenext's suggestion to its portfolio companies comes amid the liquidity squeeze already felt in the startup ecosystem that has prompted some startups including its investee healthtech startup Mfine to lay off their staff in the past weeks to cut costs.
The VC firm further went out to provide specific suggestions for startups with a runway of less than 18 months and for startups with a runway of more than 18 months.
For those startups with a runway of less than 18 months, Beenext suggested them to top up additioanl capital even if it has to be done at a flat round.
"Market has changed completely, so we need to be very realistic. Survival is the first priority rather than pricing," it said.
Beenext also asked such portfolio companies to be creative in bringing down costs by procuring free AWS/Google Cloud credits. It also suggested them to freeze new hires, cut salaries while asking to compensate heavily in employee stock option plans (ESOPs). It also asked them to stop experiments on new ideas and business till they raise the next round.
For those startups with a runway of more than 18 months, Beenext asked them to preserve cash and expect the next fundraising to be extremely difficult. It also asked them to revise all the fixed costs, sales channel, marketing plan, customer acquisition cost (CAC) and headcount line by line. "Get ready for uncertainty... get prepared for the market change," it noted.
In a 51-page note, Sequoia Capital warned its portfolio companies of the downturn, calling it the "crucible moment" earlier this week. Last week, Silicon Valley investor, Y Combinator also advised its portfolio founders to “plan for the worst” and "understand that the poor public market performance of tech companies significantly impacts VC (venture capital) investing".
Earlier this week, in a candid email to his employees signalling a potential funding crunch, Gaurav Munjal, co-founder and chief executive officer of Unacademy, said that the edtech startup must focus on profitability at all costs and the staff must learn to work under constraints going ahead.