Episode Summary
Executive Summary: In this episode of Angel, Jason Calacanis and Jeff Richards (GGV Capital) discuss navigating startups through the COVID-19 pandemic. They cover the importance of experienced founders, the challenges for first-time founders, the role of venture debt, and the potential for a V-shaped recovery. The conversation emphasizes the need for aggressive action, realistic scenario planning, and maintaining optimism for the post-crisis landscape.
Main Topics: Founder Experience in Crisis Management (Priority: 5/5): Comparison between seasoned founders (who act quickly and optimistically) and first-time founders (who need guidance on cash flow, scenario planning, and aggressive cost-cutting). Venture Debt Risks (Priority: 4/5): Discussion of how venture debt can become dangerous in a downturn, especially for early-stage companies without a CFO. Covenants and misaligned incentives can lead to challenging situations. Board Dynamics and Independent Directors (Priority: 4/5): The value of independent board members in providing objective advice during crises, versus investor board members who may prioritize capital preservation. Economic Recovery and Market Optimism (Priority: 5/5): Both hosts express optimism for a V-shaped recovery, citing Asia's rebound, pent-up demand, and the resilience of tech companies. They advocate for buying quality stocks during downturns. Startup Fundraising in a Downturn (Priority: 4/5): Deals are still getting done, but valuations are adjusting. Founders should be flexible on valuation and focus on clean terms. Creative structures like tranches may emerge. Product-Market Fit and Pivoting (Priority: 3/5): Advice for startups with weak product-market fit: cut to cash flow positive, consider M&A early, or pivot. Examples include Twitter, Slack, and Blue Kai. Zoom's Success and Competitive Advantage (Priority: 3/5): Analysis of why Zoom succeeded against incumbents: superior product, empathetic CEO, global appeal, and high net dollar retention.
Key Arguments: Experienced founders act decisively and optimistically, while first-time founders need guidance on cash flow and scenario planning. Venture debt can be dangerous for early-stage companies without a CFO, especially when covenants are triggered. Independent board members provide objective advice during crises, unlike investor board members focused on capital preservation. The economy will likely see a V-shaped recovery, with pent-up demand driving a rebound in travel and tech. Startups should adjust valuation expectations and focus on clean terms when fundraising in a downturn. Companies with weak product-market fit should cut to cash flow positive or consider early M&A. Zoom's success is due to its superior product, empathetic CEO, and global appeal.
Data Points: Jeff Richards' annual travel: 220,000 miles - Jeff Richards mentions his travel frequency before the pandemic. GGV Fund Size: $1.9 billion - Size of GGV's current fund (Fund 7). GGV Annual Investments: 40-50 seed and Series A companies - Number of early-stage investments per year. Typical Check Size (Early Stage): $100K to $8 million - Range for seed and Series A investments. Typical Check Size (Later Stage): $5 million to $35 million - Range for Series A through X investments. Airline Burn Rate: $150 million per day - Burn rate on headcount alone in the airline industry during the pandemic. Cloud Market Value Created (Last 10 Years): $2 trillion - Total market value created in the cloud space over the last decade. Zoom's Market Cap: $35 billion - Zoom's valuation at the time of recording. Zendesk Market Cap Growth: $650 million to $8-9 billion - Zendesk's IPO market cap vs. pre-crash valuation. RingCentral Market Cap Growth: $2-2.5 billion to $15 billion - RingCentral's IPO valuation vs. current valuation.
Pivotal Quotes: "You cannot talk about human existence in this case without talking about people's livelihoods. It's obvious to everybody that life comes first, but livelihoods come right behind that." — Jason Calacanis: Defending the discussion of business during a pandemic. "I've been through enough of these crises to know that on the other side, things are good." — Jeff Richards: Expressing optimism about the post-crisis recovery. "The rookie mistake is to sort of rip the band-aid off slowly, which is sort of what we're doing as a country to our economy." — Jeff Richards: Advising founders to take aggressive action quickly rather than delaying.
Implications: Founders should act decisively, adjust valuations, and prioritize cash flow. Venture debt requires careful management. The tech sector is poised for a strong recovery, with opportunities for those who navigate the crisis well.
About This Week in Startups
Jason Calacanis covers startups, tech, markets, media, and all the hottest topics in business and technology. He also interviews the world’s greatest founders, operators, investors, and innovators.