Company Building through Crisis with Sarah Applebaum
From evolution: a podcast by entrepreneurship@UBC
evolution is a podcast shining light on our ecosystem’s stories of innovation, impact and hustle throughout their venture building journey. Join us as we build community and knowledge related to entrepreneurship during the course of COVID-19.
In our first episode, host and entrepreneurship@UBC's Creative Specialist MJ Araujo speaks with Sarah Applebaum, who shares her expertise as an investor, trends she is seeing in the investing scene and how to approach company building in a period of uncertainty.
About Sarah Applebaum
In addition to being an Entrepreneur in Residence at entrepreneurship@UBC, Sarah Applebaum is a Partner at RenewableTech Ventures, a Cleantech VC that invests in early stage companies in Canada & the US. She previously was an investor with Pangaea Ventures, an advanced materials VC, where she developed and launched their seed-stage investment vehicle. Sarah is also a community activator - hosting quarterly meetups for Vancouver founders and start-up leaders.
Listen to our first episode of evolution.
To read a full transcript, see below:
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MJ: Thank you Sarah for joining us today! We're so excited to have you. How's self isolation going for you?
Sarah: Yeah, you know, ... it's alright. I'm starting to go a little bit stir crazy with the cabin fever...what about you?
MJ: I'm good. It's definitely a big change for everybody. But I'm happy to be able to stay at home and play my part in flattening the curve.
Sarah: Thankfully, you have a dog, similar to me.. it forces you to go out of the house several times a day which is really nice!
MJ: Yeah, definitely having a dog is a way of self care in this situation. I'm really excited to hear more about your insights. My first question for you is, what are some of the immediate concerns that you've heard from the entrepreneurial community during these times?
Sarah: I think there are some common themes around concerns from entrepreneurs in our network. One is cash flow and financing. So either “I was planning on doing a financing spring of this year, what does that mean? Is that on hold, can I still raise money?”, “My cash flow is dramatically impacted, my customers have all evaporated or hit pause, how am I going to pay my employees?” And thirdly, “where is my market? What is changing now? Does my market still exist? Am I a nice to have for my customers, or is my product or service essential for them to do business?”
MJ: So those are the immediate concerns you've seen within the entrepreneurial community. My next question for you is what responses have you observed from companies regarding the concerns that you just mentioned?
Sarah: Great question, how are companies responding to COVID and to the current economic conditions. So, one is where possible, conserving cash: so reducing burn rate, cutting any non fixed or frivolous expenses, and by frivolous, I just mean non core to the essential operation. So, that might be headcount, that might be employee perks, software subscriptions that are non core to the ability to do business, renegotiating rent or deferring rent payments and speaking to vendors and creditors to push out payment terms. It's also, for some companies, creating some space for them to really focus on product improvements. If customers are hitting pause on purchasing products for the near term future for six or eight weeks, this isn't a vacation. This isn't a stop to all work and all business, but it's a refocus. So I know a number of ventures that are really digging in and doing a sprint on their technology development so that when their customers are ready to purchase, their tech is much further along. Then also looking at new market opportunities. Is there an opportunity to pivot business models to offer a different product that you have the capability to build that is now a high value need for your customers? Or is there an opportunity to be creative? Maybe it's time to put your core product on the back burner and you can offer consulting services, or outsource your development team as a way to drive revenue and cash flow into the business so that you can still survive as an entity when we all emerge from social distancing and self isolation and the markets start to rebound.
MJ: Yes, I must say I love the reframing. It is at the core of entrepreneurship, to be able to adapt to change quickly. And of course, it is important to recognize that not everyone is in the best position right now to adapt to that change...but I love the reframing of what can be done now and how we can be creative around the situation. To that point, I know you've been doing a lot of research in order to help vendors navigate this particularly challenging situation. So I'm wondering if you could share some of your top insights from your research?
Sarah: I've been speaking to individuals who were senior leaders or CEOs of a company during a period of downturn and crisis, so that could be 911 the .com bust, the global financial crisis in 2008. Or it could be being a CEO running a business in Japan during the 2011 earthquake, tsunami and associated nuclear disaster. There have definitely been some common themes around how to approach a crisis in a period of uncertainty. Two points that I think are really important to make, and I hope offer a little bit of comfort... One is entrepreneurship is effectively always operating in highly uncertain times with a high degree of risk and so that should be no different than the current situation. It’s just a different set of parameters. And second, every crisis has always been unprecedented. If we had the forethought to know that it was coming, then it wouldn't be a crisis because we would have prepared. If you can look back historically, the last 20-30-50-100 years, we've gotten through all of these crises and the COVID-19 crisis will end as well and the economy will rebound. In terms of some common themes and things to think about as an entrepreneur or business owner, maybe this is the first time in your professional career you have experienced an economic downturn. I know for me personally, I entered the job market in 2008, so I think some key points for folks to think about is one is, seek advice: talk to your advisors and industry experts. If you have a formal board Board of Directors, talk to your board members, it's really important that you don't make decisions in a vacuum. There's lots of moving pieces here and lots of perspectives and experiences that you just might not have had the opportunity to have and so solicit advice. The ability for your network and others around you to provide advice, support and counselling is really unbounded. Everyone's home right now. No one's traveling and so people should be relatively available to connect with. The second theme is involve your team: as a leader, people are looking to you for guidance. They're not necessarily looking for you to have all the answers. Leadership doesn't equal answers, but they're looking for you to help them and to let them know that everything's going to be okay. Even if it's not. You want to involve your leadership team in decision making, presenting your team with options. Don't just say, well, hey, you know, we're in this crisis. Now, while we're out of cash in two weeks, and we don't know what to do. Present a number of options, for example we could all take salary cuts and defer our compensation until we get beyond this crisis, we could pivot our business to go into XYZ market, maybe we can do a service offering... but involve your leadership team in the decision making process. It's more transparent and transparency often equals trust. And your team is really looking to trust you and looking to you for assurance and guidance. The third point and this I think, is relatively obvious and we've already touched on it, is cash: it’s the most important sort of metric and driver for your business right now. How can you as a company generate revenue using the resources that you have on hand. It may be unconventional, it may not be, but any way that you can fathom to bring cash flow into your company will help you weather the storm and ensure that your company is still going at the end of the crisis. And by the way, the companies that are still standing when the economy starts to rebound and the level of crisis dissipates, are going to be more likely at being successful in raising external capital from angels and VCs because their teams have demonstrated that they have the ingenuity, the tenacity and the grit in order to manage through a crisis and survive. Then the last point that I think is really important for entrepreneurs to think about is to look at where the market is moving. I think our world is going to look fairly different in four months or six months whenever we emerge from this COVID crisis. And so what's the new normal going to look like?
MJ: You know, speaking about a new normal from your VC perspective, how do you see the investing scene changing during COVID-19 but also after it?
Sarah: There are a couple of things that I'm seeing. One is if you as a company were already in due diligence with a VC and close to negotiated deal terms or already have a signed term sheet, it's likely that we'll go ahead. There have been instances of deals not going through and VCs pulling term sheets due to changing market conditions that’s happened. But I would expect overall to see a slowing down in the pace of deals that get done. I think there's still an opportunity for you to access venture capital. But the diligence is going to be more intense, the risk reward profile has changed. I think investors are now seeing potentially longer hold times of their investment. In looking back to previous market corrections, whether that's 2008- 2000-2001, I think we're going to see a reset in valuations. Venture capital and private funding for companies has been on an upward trajectory for the last 8 to 12 years. Since I started in venture in 2012, people have been saying it's in a bubble. So I think we're going to see valuations come down quite dramatically. If you are raising later this year, or in early 2021, I would throw out your expectations on valuation, because it's going to look very different. There's still going to be capital, and it's good companies that are going to get invested in.
MJ: It's comforting to hear from you that it will be different and moves will still be happening within the investing ecosystem. I now want to thank you so much for your time and sharing your knowledge so generously. Where can our audience find the article that you're working on right now with all the resources?
Sarah: Great question I haven't decided yet...I will let you know it definitely will be somewhere that's easily consumable and publicly available, whether to medium posts or something else. Then it will be a living document that I hope to continually be able to update as more people participate.
MJ: Sounds great. Thank you so much for your time.
Sarah: My pleasure. Thanks, MJ.
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Read Sarah's recent article on medium: Covid & Startups- Managing in a time of crisis
About entrepreneurship@UBC
entrepreneurship@UBC is an initiative that propels UBC innovations out into the world through entrepreneurship and venture creation, providing UBC students, researchers, faculty members, alumni and staff with the resources, networks, facilities and funding they need to succeed.