Does anyone have experience raising capital during a recession? I had slowly been taking my first steps into that world when all of this hit and had to pump the brakes when the market first took a dive. I’m sure it’s not impossible, but now even more I feel like I don’t know where to start.
[ Deleted ]
I’ve only heard some anecdotes from some of my former colleagues (who are working on their A round) and a few other folks that I know in the investor space and my general sense right now is: VC’s are still hungry, but they are going to be looking at either getting a better deal (less money for more equity) or for businesses that they are betting can be transformational.
What I think that means is if you had your projections and estimates for a business model that is Pre-COVID, it’s likely totally irrelevant now.
It probably depends on how much you are looking to raise. If you’re still looking for angels/seed capital, I think there is probably a chance to find money but expect it to be harder than normal. I was trying to help my last company raise their Series A when the economy was great, and it involved a tremendous amount of getting your ass kicked to try and find the right partners.
These are definitely interesting lists and everything you would expect to be up and down at the moment.
Will be interesting to take another look at some of the down list again in the next month or so if people continue staying home, specifically:
31 Ceiling Lighting, 99 Living Room Furniture…people wanting to decorate unless they’re preserving cash. I have a friend that works for an online furniture retailer and he said they’re doing surprisingly well at the moment.
47 Projectors…making that home cinema
50 Hand Tools, 61 Tool Storage…DIY coming in like cooking and baking.
70 Bar & Wine Tools, 71 Drinkware & 74 Home Bar Furniture…guess making your own cocktails isn’t always quite the same as improving your cooking skills, especially those with families/kids.
72 Instruments…finally time to learn that guitar!
No surprise anything involving exercise or outdoor activity is massively declining.
Wallmart is already pushing DIY advertising on my youtube feed…
This is gonna be different from what we know out of experience:
Slightly off subject but I think this latest downturn is going to offer opportunities dealing with the pandemic; contact tracing, contactless payment systems, disinfecting products, and on and on.
agreed, received 2 RFPs from PPE companies in the last week.
“I skate to where the puck is going to be, not to where it has been.”
- Wayne Gretzky
What’s selling now isn’t where to look. It’s what will sell down the road. We all know how long design and development takes. PPE or bread makers may be hot now, but in 6 months to a year when people are starting to get free (I hope!), it will a different story. Economic fall out will be big, but low cost/barrier to entry, and fun will in demand.
Just as an example - running. So many new runners now and pent up demand from current runners wanting to race! Starting a huge project next month…
Also beer and alcohol. Breweries are not able to keep up with demand now and home delivery is introducing a lot of new customers that will likely stick around. Beer is not a fad. My beer clients are looking at all kinds of new revenue streams.
R
a recent Forbes article speculated on how no company lets a recession’s opportunity to cut costs go to waste reminded me of the last recession where an entire division was cut loose, VP on down. In that ID dept. there wasn’t the 2 list environment, the oldest (most expensive) designers went first. Those guys had 30yrs with one company though, nothing they could do that couldn’t be done by younger/cheaper designers. (that is until they folded and we all got canned)
My point is if you think your indispensable, your not. Becoming indispensable is always assuming you are dispensable and acting like it.
People assume the newer/younger people will be first to go, but don’t think about the economics of it. 1 VP costs as much as 10 junior designers. Not saying the VP is necessary, but when times are tough, it’s easier to cut top line costs at the top and have managers/experienced people spread thin while hungry to keep their jobs. It also is a time where companies cutting costs can justify farming projects out as expenditure on consultants doesn’t show the same on the balance sheet as employees (and associated benefits).
From a consulting POV, (I’ve been running my consultancy for 13 years now), this can be good. Back in 2008, i had one of my best years ever with new clients and projects and I was only 1 year into starting my consultancy at the time. I think this next year could be a big one.
Recession bring new industry opportunities as mentioned, and also can be the driver for people laid off or in uncertain economic positions to begin thinking about starting their own business and looking to hire experienced consultants to help. No time to work on a start up like the time you might have sitting at home now thinking about what you really want to do and zoom meeting calls with corporate probably isn’t it!
R
This is interesting…
Just yesterday I had a discussion about the future with the founder/CEO of a startup that I am working with currently. I was frankly astonished at his lack of understanding of what is required to bring hardware products to market in the USA. He has stated that one of his prime directives is to manufacture in the USA and not China, but because of his background in software, he does not have the experience or imagination to plan for such a hardware play that his vision includes. Hence the need for my services.
My instincts are telling me that if the USA is to re-shore manufacturing in any form, there needs to be a paradigm shift in education. The hollowing out of knowledge and understanding of manufacturing from academia in the USA has left it dependent on China for many critical products and services. Education has followed suit over the last 20 years letting critical curriculum go overseas to low wage developing economies. This has made room for the dearth of software and financial curriculum and economic growth focus to flood the market in the USA and leave the next generation to design and build virtual solutions to non-virtual problems, but then unable to make/build things to save their life and the lives of their parents and grandparents.
We have an interesting problem to wrestle with now. The generation that is the most populous (millennial) in North America and Europe does not have the tacit skills or contemporary infrastructure to make a prosperous life for themselves. They are being instructed to build their own enterprises by social policy directed by education and to not rely on large organizations to build their life upon. The trouble with this “start ups by millennials approach” is that it does not include the advanced application of native hardware manufacturing to the problems that are now in the possible near future. Students in North America are paying handsomely to go on academic field trips to Hong Kong, Singapore and Vietnam and being instructed that this is where they will get their product made before it is exported to the market it targets.
A startup in a recession is the way forward indeed, I just don’t know if the ability to compete with China is possible as it stands today. Most people do not understand how large China has become as a competitor. Changes are needed on the macro level…A reset of education focus and policy is one of the first things to be put on the table for discussion.
I never said anything about domestic production.
And for sure… with every increase of new start up founders, there’s an increase in those that have no idea what they are doing or have unrealistic goals. Wading through the inquires that are a waste of time and finding the ones with potential is half the job.
90% of my clients are startups, and 90% of the projects that come to me I don’t take.
R
this Forbes article points to the history of how capitalism evolved after past crises and places blame on the Boomers for the financial aspects of the current one. If there’s any lesson from history to take away here is twofold 1. it’s likely to be surprising and 2. Americans love money.
Our business is scoping nearshoring to mitigate some of the risks of regional epidemics but ultimately someone will win the argument that low cost sourcing is the way to go. Look at the history of vehicle sale rebounds: first it’s used cars then new pickups and not till very last new RV’s and boats.
Design in a recession (depression?) focuses on where the demand is, cost reduction and OPP product.
I don’t think the future anywhere is in manufacturing. Manufacturing employment have been falling globally the last 20-30 years and it’s likely to continue. Software development has made sense in NA/Europe because of the low startup costs combined with the potential to scale. Three programmers in a shed can build an app that makes millions. Three designers in a shed can build a chair for 1k.
I’ve been a big believer in UBI or reducing working hours for 5~10 years now. J.K. Galbraith and Nassim Taleb have both pointed out in different times how humanity struggles with abundance. I think Covid-19 and 20 years of sluggish growth show that. We have plenty of food, land and other resources but we can’t allocate them fairly. It will be fascinating to see if we confront the issue.
agreed. Ironically SF writers were writing about this in the 1950s. Economists at the time though that automation was right around the corner (and if you plotted it as a straight line from the industrial revolution, it made sense) so many SF writers imaged futures with societies based on fully automated manufacturing and the ones that were more utopian than dystopian often focused on some kind of UBI set up. Heinlein had some interesting ideas on the subject including the government owning all IP and businesses licensing the IP from the government which would allow the government to then deploy a “dividend” to people. Only those who were deemed to be able to contribute were allowed to have jobs which became points of pride, unpaid… anger author, I can’t remember who, took that premise and made it dystopian where the people who were “allowed to have jobs” became a class and everyone else became second class citizens who wold often sabotage the automated factories for fun just to see the ones who had jobs scramble around and fix everything…
Sorry, SF … don’t get me going (not that you did). Point being, I agree with you Ray. Mainly because I believe Einstein’s definition of insanity, doing the same thing over and over and expecting different results. We keep ending up in the same spot (or worse) with each crisis. We probably should consider employing some different solutions.
Why do our ‘smartest’ or most technically minded people strive to be working on another mobile phone, or another method of delivering food for free, solving the same problems over and over? Highly talented and motivated designers making colorful gadgets that do nothing in the greater scheme of things except obsolete the older models. We have production cars with 400hp and bragging rights to another 0.1 seconds off the 0-60 time, when that effort, thought, resource could have gone into fleets that average 50mpg instead. “Its what the market wants, its the most fair and just way”…
A friend of mine used to be a designer at Chrysler in the early 2000’s. I remember him saying that the chief designer for the minivan program had a hard time recruiting designers to work on that team. In exasperation he exclaimed to the studio, “why don’t any of you want to work on this? This is what people actually buy, drive, and use. This is what pays our salaries.” … I experienced the same thing at Nike. Everyone wanted to design an Air Max or a Jordan (self included of course!) but two of my friends worked on the Monarch 1 and Monarch 2, puffy white leather sneakers sold at Kohl’s. Both of those shoes sold in the millions. The designer of the Monarch 1 is VP of footwear design now. The designer of the Monarch 2 became design director of Jordan before starting his own brand… getting OT, but to the earlier point of designing OPP product.
Because we all want to design cool shit.
R