How to Financially De-Risk Your Business

Silicon Valley Bank is dead. And the reports of its demise are not at all exaggerated. It’s gone, just like the Firefly series no matter how many online petitions get signed. On some level, there’s a fitting symbolism to it.

The Fading of Venture Capital

Venture capital has been grinding to a halt for about a year now, and somehow, the disintegration of Silicon Valley Bank resembling Amelia Earhart’s disappearance in the Pacific Ocean seems a poignant period on this chapter for the venture sector. Venture capital is like that. When they close up, they don’t have a going-out-of-business sale like the camera stores in Manhattan. Instead, they just sort of hang an “out to lunch” sign and then lunch takes about 2 years.

But the venture capital industry will come back. It always does, and with a roar. Money will flow again because innovation in America is where the great returns are (with commensurate risk). But the problem is, companies that had been relying on venture capital grow suddenly find the rug pulled out from under them, and their moneyed investors looking forlorn with their pockets turned out like Mr. Monopoly on the Poor Tax Community Chest card.

Formulate a Game Plan

If you’re one of those companies, you’re wondering if your value is zero or headed there at full speed. Financial risk is a concern for every company that is not comfortably producing positive cash flow.

It doesn’t have to be the case, and here’s a quick game plan for you…

1. Switch to a sales focus. This means that you don’t cut marketing dollars or sales force. If anything, you double down. The key performance indicators that matter are almost exclusively around sales—new leads, leads closed, average time to close, cost of customer acquisition, revenue pe customer, customer churn, thought leadership pieces, social media engagement, and anything else you can think of. The happiest expense you can pay out is sales commissions.
2. (Really 1a) – Switch away from a technology focus. R&D for a product 2 years from now doesn’t help you or anybody else if you’re out of business.
3. Look for alternative funding sources, such as grants, revenue-based lending, technology licensing, competitions, or even borrowing, using your data as collateral. And by the way, Silicon Valley Bank was the best-known, but not the only, venture lender. Check out Lauren Cascio’s post for a number of other potential financing sources.
4. Quell investor hesitation. If your existing investors have been hesitant to provide more capital, offer them great terms. You can potentially avoid a down round by offering attractive liquidation preferences, bonus participation, or even some form of antidilution.
5. Manage cash, not profits. Profit and loss statements can and do lie. Notice that we are not recommending, “don’t spend cash.” If you just stop spending cash you’ll starve the company to death. But that doesn’t mean you can’t be more intentional about how you spend. If you’re not already in the habit of reviewing a daily cash report for your company, start.
6. Involve Your Employees. Too often, when things are tough, executives will try to hide how tough things are. Sometimes this is due to ego. Other times they are afraid of people jumping ship. Here’s the thing: Your employees are smart. It’s why you hired them. They don’t have to have the daily cash report to see when things aren’t going well. And when information is scarce, gossip and creativity fill the gaps, leading to a perception that things are worse than they actually are. By levelling with your employees, they will be given the opportunities to be your partners. They’ll have ideas for efficiency improvements. They may know why some prospects aren’t converting. Sometimes they will even volunteer to cut their own benefits.

Positioning Your Company to Survive

Financial risk to almost every company in the economy is elevated right now, and emerging technology companies are the most vulnerable. But it doesn’t have to be a death sentence. By following these suggestions, you can make your company less venture-dependent, and position it to survive and even thrive without outside investment. In doing so, you’ll significantly de-risk your company and improve its value.