In Tough Times, it's Time to Reflect and Recalibrate

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It is an understatement to say that today’s market environment is turbulent and extremely challenging for startups. Many are trying to survive amidst a slowdown in revenue. For the lucky ones, “valuation rightsizing” funding is certainly better than “not existing anymore”. In my years of investing and working with startups, I have learnt that these are the times that call for a moment of introspection for both VCs and Founders. What can we do less or more of? How can we be creative and realistic to steer the ship through the storm and finally to safety?

Investors need to do more and support

Founders need to be level-headed to lead their companies through the choppy seas and emerge stronger. To do this, they need strong support from their team and their investors. I recall a Chinese proverb that Patsnap founder Jeffrey T. shared about the impact that investors have on founders during times like these - 雪中送炭, meaning to give coal to someone during a cold winter. Just like giving coal to someone during the winter can give them warmth; likewise, good investors can give their time and support to work with startups during difficult times.

Time for the Hard Talk

Besides the warmth, as our senior associate, Tan Benedict , shared in The Business Times column recently - Investors need to have the hard talk with founders too. Are there fats to be trimmed? How can things be done differently? Investors need to guide them through the tough decisions. I remember a recent conversation with one of our unicorn portfolio companies where I was told that they actually did not see much revenue decline after rationalising their headcount. They learnt that each person could have actually taken on more work. In good times when things are moving fast, companies tend to throw more headcounts at problems, but it is only in a down market, does the “bloatedness” become obvious. However, as Founders and VCs, we must have empathy too. Those who stayed on to help persevere through the winter need to be rewarded when the company recovers. 

Read our Business Times column: The hard talk that venture capitalists need to have with startups now

Always Revisit Why You Started the Company

I have lived through many cycles in my VC career. Today’s market situation, while painful and difficult, is no exception. Our vision at Vertex is to build regional and global Champions. As investors, we need to understand that Champions are molded and go through ups and downs (some even existential ones). It is the team that is able to transform their company from a great startup to become a global Champion through perseverance and determination, with the support and guidance from their investors. My advice for startups is to recognise that tackling change and making difficult decisions are part and parcel of “growing up”. In challenging times, start-ups should recalibrate their business models and take appropriate calls and decisions. I tell my portfolio founders that in challenging times, they should always think back on why they started the company. I have not seen any founder, or at least those we have funded, walk away when the company is facing challenging times. When you are able to reflect on your founding mission, it brings back the motivation and will to continue.

To all Founders, my message is “Take the opportunity to reflect and recalibrate, and believe you can succeed. Reflect on why you started the company”.

We hope this article brings you valuable insights for the journey ahead.

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Joo Hock Chua

Managing Partner

Vertex Ventures SE Asia & India