Episode Summary
Executive Summary: This episode examines how COVID-19 is reshaping startups, venture investing, and the broader tech economy. Jason Calacanis and GGV managing partner Jeff Richards argue that founders should rapidly update plans, preserve cash, and prepare for a long recovery, while still recognizing that strong companies may emerge better positioned. They discuss portfolio triage, valuation resets, board behavior, venture debt risks, and why experienced operators and independent board members matter most in a crisis.
Main Topics: COVID-19’s immediate and post-crisis impact on startups (Priority: 5/5): The hosts frame the pandemic as a sudden, systemic shock that will hit revenues, hiring, and fundraising, especially in travel, hospitality, restaurants, and other high-burn sectors. They compare the situation to prior crises but emphasize it is faster and more correlated. Founder response: cash preservation and scenario planning (Priority: 5/5): Richards advises startups to freeze hiring, model severe downside cases, understand cash burn, and move quickly rather than wait-and-see. He stresses that first-time founders often underestimate how dramatically revenue and runway can change. Experienced vs. first-time founders in a downturn (Priority: 4/5): Seasoned founders are described as more prepared, calmer, and faster to act because they have lived through prior crashes. First-time founders often need help internalizing the scale of the shock and the mechanics of runway reduction. Board dynamics, investor panic, and independent directors (Priority: 4/5): The discussion highlights how board incentives can diverge in a crisis, with some investors prioritizing capital preservation or quick exits. Independent board members are presented as a stabilizing force because they are more objective and operator-oriented. Venture debt and covenant risk (Priority: 5/5): Richards warns that venture debt can become dangerous when growth slows and cash flows weaken. He argues that founders often take debt because it avoids valuation resets, but many do not fully understand the downside if the market turns. Valuations, retrades, and capital-market reality (Priority: 4/5): The conversation covers how public-market declines should reset private valuations, why clean terms matter, and why experienced founders accept lower marks to secure runway. They caution against private-equity-style terms and misaligned liquidation preferences. Recovery, opportunity, and long-term optimism (Priority: 4/5): Despite near-term pain, both speakers are bullish on tech, arguing that strong companies, cloud software, and travel brands will recover. They expect a rebound in demand, renewed IPO activity, and opportunities for investors willing to buy during the downturn.
Key Arguments: Crises force startups to replace optimism with hard scenario planning; founders must model severe revenue shocks and extend runway immediately. Seasoned founders and experienced investors are better equipped to respond because they have lived through prior downturns and understand correlation effects. In a downturn, valuation should become secondary to survival; raising capital on clean terms and preserving cash matters more than defending a prior mark. Independent board members can reduce panic and help balance investor capital preservation against long-term company value. Venture debt is useful only when the company has finance expertise and durable gross margins; otherwise, it can create covenant and repayment stress. Travel, hospitality, and restaurant businesses are uniquely exposed and may not rebound quickly, while cloud/software companies and strong brands should recover faster. Public markets often lead private-marked corrections; founders should adjust expectations when comparables fall, rather than resist reality. The best outcomes may come from companies that survive the crisis, cut burn, and emerge with leverage, especially if they can reach profitability. Private equity and SPACs may become relevant buyers for slower-growing but cash-flow-positive software businesses. The broader tech ecosystem remains structurally strong, and a recovery could create significant post-crisis upside for investors with patience. Data Points: Quarantine duration: Day 22 - Jason says he is on day 22 of quarantine at the start of the episode. COVID deaths in the U.S. at the time: A couple of thousand - Jason references early U.S. pandemic data and mentions a few thousand deaths. Confirmed COVID cases: Hundreds of thousands - He notes hundreds of thousands confirmed with COVID-19. Flattening of infection curve: Massively flattening - Jason says the numbers are flattening significantly, supporting his optimism. Richards’ travel volume: 220,000 miles last year - He describes himself as a heavy traveler and United Global Services member. GGV firm response time: Week four - Richards says GGV sent people home and moved to work-from-home four weeks earlier. Founder call volume: 35 CEOs over the last three weeks - Richards says he has spoken with about 35 CEOs about crisis planning. Expected hit to Q2 bookings: 80% to 90% - Richards advised a first-time founder to assume an 80–90% drop in bookings in Q2. Runway compression example: 18 months to 10 months - He explains how reduced bookings and cash inflow can sharply shorten runway. GGV Fund 7 size: $1.9 billion - Richards describes GGV’s current fund size. Capital earmarked for seed and A: $450 million - Part of the $1.9B fund is reserved for early-stage investments. Annual investment pace: 40 to 50 seed and A companies - GGV expects to invest in roughly this many early-stage companies annually across regions. Early-stage check size range: $100K to $8 million - He gives the typical range for seed and A investments. Larger-stage check size range: $5 million to $35 million - He gives the typical range for larger fund investments. Portfolio follow-on deals in flight: 2 term sheets - He says two companies are signing financing term sheets during the crisis. Public comps decline: 30% to 40% - He cites this as the reason founders should lower valuation expectations. Venture debt examples: $10 million debt on a $100 million valuation - He explains how debt can substitute for an equity reset but create hidden risk. Liquidation preference: 1x typical; 2x-3x historical - He notes that modern Silicon Valley financings usually use 1x, while 2x-3x was more common in the late 1990s. SPV platform scale: Over 5,000 completed transactions; $2.5 billion under administration - Ad copy for Assure highlights scale in SPV administration. LinkedIn job-post credit: $50 credit - Ad copy offers a credit for first job posts. NetSuite customer count: More than 19,000 companies - Ad copy notes NetSuite’s customer base.
Pivotal Quotes: "business and jobs are what give people purpose in the world in many cases" — Jason Calacanis: He defends discussing startups and livelihoods during a pandemic. "assume an 80 to 90 percent hit to bookings in Q2" — Jeff Richards: Advice to a first-time founder about how severe the crisis could be. "if you have a fund that has provided you with venture debt, at the end of the day, if your company sells for 200 million or 20 million, if you have 20 million in venture debt, all they care about is that you sell for 20 million plus the return on their venture debt" — Jeff Richards: Explaining why venture debt can create misaligned incentives in a downturn.
Implications: Founders should move fast: cut burn, model worst cases, and avoid risky debt. Investors should stay calm, support companies through triage, and expect valuation resets. The crisis may separate durable tech winners from fragile businesses.
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.