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20226/21

“We should be prepared for the worst in a recession.” advised the founder of the startup, Y Combinator, an investment firm.

In 2022, there are concerns that the global economy will slow down due to Russia’s invasion of Ukraine, rising prices, and the effects of the remaining new coronavirus infection (COVID-19).In fact, the Dow Jones Industrial Average has plummeted on May 19th in the New York Stock Exchange.

Hello, this is Santoshi.

I think that I have experienced events such as the subprime loan problem and the Lehman shock.

I think “living is not easy”.

Even if I try to do something new, I don’t have the courage to step on it.

I searched for a life manual today.

 

Y Combinator, which has invested in startups such as Dropbox, Airbnb and Reddit, told its founders Dalton Caldwell, entrepreneur and partner of Y Combinator, and Michael, managing director of Y Combinator. I also recommend watching the following video, where Seibel talked about “how to protect startups in the event of a recession.”
Save Your Startup during an Economic Downturn – YouTube

 

It turned out that he sent an email to the founders of Y Combinator-backed startups advising, “I can’t predict how bad the economy will be and I should plan for the worst.”

YC advises founders to ‘plan for the worst’ amid market teardown | TechCrunch
https://techcrunch.com/2022/05/19/yc-advises-founders-to-plan-for-the-worst/

Y Combinator warns startup founders to be wary of economic downturn – SiliconANGLE
https://siliconangle.com/2022/05/19/y-combinator-warns-startup-founders-wary-economic-downturn/

In 2022, there are growing concerns about a recession due to various factors such as inflation, rising interest rates, the Ukrainian war, and the lockdown of China due to COVID-19. Y Combinator advises the founders of supporting startups to “prepare for the worst” while the stock prices of major companies such as Shopify, Netflix, and Meta have already plummeted. I sent an e-mail. In an email, Y Combinator argues that in times of recession, you should shift your mind quickly and plan ahead.

The advice that was actually given in the email that TechCrunch got.

The Advice

 

1: The future outlook is bleak.

No one can predict how bad the economy will be, but it is unlikely that it will move in the right direction.

2: Make a plan for the future.

“A safe move is to plan for the worst,” said Y Combinator.

He insisted that cost reductions should be made within the next 30 days to extend the period of cash shortage (runway).

He states that the company should aim for a “default alive” state where spending is constant and profits continue to grow.

 3: You should move to raise funds as soon as possible.

If you are likely to run out of funds before you reach the default alive and you expect to invest from existing or new investors, consider moving to raise funds early. You should do it.

 4: survive for the next two years.

Y Combinator tells its founders that the company should be able to survive the next 24 months without funding.

5: Please be aware that poor performance of high-tech companies will have an adverse effect.

Poor performance of various major tech companies will affect the investment strategies of the venture capital firms that invest in them.

During a recession, even venture capital firms with a lot of money will slow down their capital development, and small venture capital firms will stop investing or go bankrupt.

As a result, it will be easier for capital to concentrate on companies that are already performing well, and the number and amount of new investments in startups will decrease.

Also, since the number of investors attending meetings does not decrease in proportion to the decrease in total investment, it is wrong to speculate that “there are many meetings held, so we are actively investing.” Please note that there is.

 6: The funding environment so far is not common sense

Founders who started startups in the last five years of the upturn need to rethink that the funding environment hasn’t been the norm.

“Your funding experience is likely to have been unusual and future funding will be more difficult,” Y Combinator said in an email.

 

 7: Funding round slows down

If your startup has completed a Series A funding round in the early stages of starting a business, until you achieve a “product market fit” that points to the state of acceptance of your product in the right market. You should assume that the next funding round will not happen.

 

 8: Change of financing plan

Y Combinator said, “If you plan to raise money in the next 6-12 months, you may be raising money during peak recession. Even if your company is doing well, it’s a chance of success. Remember that is very low. We encourage you to change your plan. ”

 9: Survival is the highest priority

During a recession, many companies spend a lot of money without planning well and realize that they failed when they tried to start the next round of funding.

Y Combinator told the founders, “In a recession, it is often the case that you can gain a large market share just by surviving,” and insisted that you should focus on the survival of the company during a recession.

 

“Living is not easy”

As you can see, it is very important to prepare in advance even in poor economic conditions.

I think these nine items of startup advice are important in my life.

Money is second only to your health.

You can’t live without money.

 

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