Calling out to the fearless

Every year in July we send out a detailed annual letter to our investors indicating what we’ve done in the prior year and what we expect to do in the coming year. It’s good practice to clearly signal our plans, to try and meet these objectives, and our investors appreciate the clarity and accountability.

However, on 12 March this year, we decided to send an interim letter to our investors in the face of COVID-19, the mountain of uncertainty over how businesses would be impacted both organisationally and financially, the conjecture over how the startup ecosystem would react, and how Tempus was intending to approach this climate.

In short, Tempus is open for business. We understand that there is a high degree of economic uncertainty brought on by COVID-19, but we believe in the catalytic power of technology and we are investing for the next decade and beyond, not just the next few months.

Been here before?

If you are under 33, it’s unlikely you have worked through a true economic downturn. In fact, we have only had four global economic shocks in the last 34 years (19 October 1987, November 2000, 9 March 2009, and now?), with the 1997 Asian debt crisis and Australia’s recession in 1994 being localised events. I remember all of these clearly, but it wasn’t until 1997 that I was investing and began to learn some lessons. The lessons were harsh back then, and the impacts of COVID-19 will be another steep learning curve for us all.

“History doesn’t repeat itself, but it does rhyme” Mark Twain

Today the situation is different from these economic shocks. The extent of the global impact on health has the potential to be exponential, it is scary and unpredictable, and it is not a man-made, self-inflicted economic woe that central banks can solve like before. Clearly beating COVID-19 is going to require a collective effort on the home front, and by employers and governments — we are in unchartered territory, and hopefully, we can pull together as a community. But the effect on business does have a similar feel to prior shocks, and this unmistakable feeling of being in free-fall is palatable.

It helps to have lived through these types of situations. For those who have been through prior economic shocks, wisdom tells us that things will pick-up, that the goal must be to keep going, to manage emotions, seize opportunities when you can, and to be careful but not to retreat out of fear. The uncomfortable truth is that business failures now are mostly a function of bad decisions made earlier, not decisions made now. But good decision making (whilst uncomfortable at times) will always have a place in good business.

As economic optimism has risen over the last 6 years, it’s understandable that some people have seen entrepreneurship and founding a startup as a way of making some money, especially if investment has come easy. These founders will struggle for a reason to persevere during the coming period.

However, the best founders build companies because they know no other way of being, they don’t care about whether there’s lots of money sloshing around, they only care about their product, their customers and a massive opportunity. And for those founders there will be capital — entrepreneurship is still a valid career choice for the committed.

Tempus is open for business

Tempus exists to invest in the next generation of ‘impossible’ companies. We are here for the next big idea, the next global company, and the fearless founders that can look beyond the next 12 months to the journey ahead. If you are one of these founders and you are looking for seed capital, we want to hear from you.

If you are looking for seed capital, we want to hear from you.

It takes time to build a great company (7–12 years), and so we have to look to the future in order to deliver on it. And great ideas and great founders do not stop in down times, they thrive. During the GFC in 2007–2010 the following companies were founded: Twilio, Slack, Waze, Whatsapp, Pinterest, Asana, Waymo, Trustpilot, Datadog, Kickstarter, Glossier, Docker, Stripe, Headspace, LendingClub, AngelList, Beyond Meat.. and the list goes on… What will the world look like in another 10 years? Who will build the next great startups? And who will fund these opportunities?

Prior to COVID-19, Australia was already suffering from a seed-stage gap (read here). With the slowing of economic activity, it is likely that the angel investor base will retreat for a while. It’s therefore critical to the startup ecosystem that Tempus and other early-stage VC’s keep investing in the very best Australian/NZ founders right from the start of their journey. And we believe Australia’s institutional investor base has an important role to play in supporting early-stage companies and the ecosystem that will continue to deliver solid returns.

Startups Unite

Over two weeks ago we wrote to our founders regarding COVID-19 proposing that they quickly make contingency plans for their operations, sales, marketing, staff health, and balance sheets — most were already on top of planning. Since then there has been an overwhelming level of support for founders from across the ecosystem, and from the VC community who have invested in their success.

Decision making during these periods requires a clinical approach to reality, protection of staff wellbeing, sensible business decisions, and the careful management of balance sheets.

Founders have the opportunity to make both defensive and offensive decisions in the face of this type of crisis. Defensive strategies are just one vector for decision making, but opportunities exist for those willing to think creatively and to work with customers to deliver outcomes — everyone is looking for a productivity gain in a downturn.

However, growth will be unpredictable and unit metrics are going to be upside down for a while. Whilst SaaS is one of the great business models (low CAPEX, high gross margins, positive cashflows), not every balance sheet or unit-economic model is healthy, and not every company is a lock-in with customers on subscription. So our high-level recommendation to founders is to manage fixed costs carefully, make cuts swiftly (for everyone’s benefit), focus on revenue, close out your receivables (even at a discount), talk to your customers to lower churn rates, keep in touch with your investors, and more importantly reach out to other founders going through the same experience — there are offensive and defensive lessons to be learned.