How To Navigate A Startup In A Bear Market

As the market nosedives, Justin Kahl and David George go beyond the general advice of conserving cash, extending runway, shifting focus from growth to efficiency, and provide a diagnostic framework for startups to navigate market uncertainty and downturns.

STEP ONE: Reevaluate your valuation

Your valuation multiple is the ratio of your valuation to revenue. 

You can get a rough estimate for the change in your valuation by looking at leading public companies in your sector

If they’re down 60% there’s a good chance that you’re in a similar position 

Once you have an idea of how much your market segment has dipped, recalibrate your goals for the new lower valuation 

Estimate change in valuation, add growth and efficiency adjusted premium, calculate new ARR, hit this new target with 12 months of runway – you’ll be in a good position for your next raise 

STEP TWO: Understand your burn multiples

Your burn multiple is cash burned divided by net ARR added

If a company has a burn multiple of 4x, it is burning $40M to add $10M 

Tracking this multiple helps you stay on track – measure it every quarter

STEP THREE: Build scenario plans.

Burn multiples and valuation multiples tell you how efficiently and how much you need to grow 

However, as the fundraising environment changes, you have to watch your cash balance very carefully 

At minimum, plan for these 3 scenarios: 

i) Base case – 80% confidence plan that you can hit this goal

ii) Best case – ARR and burn rate is likely at or better than your operating plan from two quarters ago

iii) Worst case: you need to slow burn significantly and lengthen your runway

UPSHOT: Though it’s important to remember that markets are cyclical and downturns come with a silver lining. Some of the strongest businesses are forged in the toughest times, and often, those that survive when the market turns are rewarded with increased market share and leaner, more efficient operations.

Andreessen Horowitz

#venturecapital#valuations#marketconditions#burnmultiples#startups#investors#founders#ceos#goalsetting#forecast#framework

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