The COVID-19 pandemic is rapidly putting startups in a novel situation. According to a survey done by The Confederation of Finnish Industries, 87% of the respondents made up of 780 entrepreneurs and business executives expect COVID-19 to have at least some negative impact on the company’s operations and financial position.

While it could be argued that there are always companies that benefit from a crisis, most startups are facing profound challenges like drops in business activity and disruptions with supply chains.

As Sequoia put it in their now-famous Black Swan memo, nobody ever regrets making fast and decisive adjustments to changing circumstances. To help the startups in our network adapt to the new reality, as a first step, we gathered the best advice from Finnish investors and key members of the local early-stage investor ecosystem. We hope these insights help founders and startups in Finland and around the world forward in this challenging time.

Sami Lampinen, Managing Director at Inventure and Chairperson of the Board at FVCA

“All actions should lead to increased credibility and fundability”

How do you see the situation with COVID-19 affecting the startup and VC scene as a whole?

Based on our analysis, about 60-70% of the startups seem to have at least a short-term negative impact. Some, certainly the most digital and B2C focused ones, are clearly benefiting from prevailing market changes and the expansion of consumers’ online activity. Luckily, funding capacity is still good since the VC scene, in general, has healthy pools of dry-powder in funds. CVCs and family offices may be reducing their activity.

How is your fund/company preparing for the upcoming months?

We keep now a weekly dialogue with CEOs, fellow VCs and ‘co-investors, and LPs. Active and most transparent communication is now most important between all the parties. This allows us to give valuable guidance for the portfolio, and make the smart decisions for allocating the resources; both managerial resources & monetary ones.

What advice would you give Finnish startups now to keep their head above the water?

Use your investors to get the backing you need. In tough times, we encourage the founders to craft the funding solution primarily with existing investors. Then, it is easier to broaden the funding base. If no investors or no backing, then I would reduce the burn asap, and look for the support from the customer & partner side. All actions should lead to increased credibility and fundability.

Timo Argillander, Managing Partner and Co-Founder at IPR.vc

“Remember to continue to be a good ESG citizen – if you need to cut your personnel costs, be sure to do it in a respectable way”

Photo by Junnu Lusa

How do you see the situation with COVID-19 affecting the startup and VC scene as a whole?

Everybody in the scene has been talking about disruption but now it is something really disrupting that can be ahead of us. Visibility into the future is very unclear, which will be slowing down all decisions and also all funding processes. 

How is your fund preparing for the upcoming months?

The fundamentals in our target industry, media, and entertainment, have not changed and the industry can even benefit from the events (think of streamers!). However, the risks are higher and we need to put even more analysis in our investment cases. 

What advice would you give Finnish startups now to keep their head above the water?

It is critical to ensure a runway and take necessary actions quickly. At the same time remember to continue to be a good ESG citizen – if you need to cut your personnel costs, be sure to do it in a respectable way.

Inka Mero, Founder & Managing Partner at Voima Ventures

“Many of today’s unicorns have been founded or built during recessions or downturns – resource scarcity can be a source of creativity and pivoting”

How do you see the situation with COVID-19 affecting the startup and VC scene as a whole?

The global economy is suffering and a negative halo similar to China is happening now in Europe, and the USA. Especially due to the stock market (which correlates with private equity and venture capital markets) volatility, we expect that there will be a significant dip both in startup valuations and total rounds raised during 2020 as a whole. The best and growing companies will, of course, continue to get funded and there is still plenty of VC funding in the market, as many new funds have been raised in the past few years. The investment pace will, however, slow down. Seed and pre-revenue stage investing will likely see a bigger drop, as the liquidity of the angel investors especially is decreasing. In the Nordics, the governmental actions should kick in to help the startup ecosystem get over this turmoil. On the positive side, we expect the health and medtech companies to gain both more traction and funding. 

How is your fund preparing for the upcoming months? 

We will continue investing and analyzing new opportunities. On the virus, we started already last week by firstly making sure that our own team stays healthy and safe by moving to remote and online mode. On Friday, we also issued an urgent letter to all of our portfolio company founders and CEOs to address the COVID-19 topic seriously and to firstly assure personnel safety, health, and team spirit, but also to make a risk plan, update sales forecasts, cash flow, and funding plans. Our view is clear, there will be a substantial impact and companies should assure 24 months runway. This week we are spending time with the CEOs to help them with these actions. 

What advice would you give Finnish startups now to keep their head above the water?

Firstly, take care of your team, talk to your people, board and investors –  rather over-communicate than under-communicate. This is also a great time and an important time to pick up the phone and call your existing customers! When times get rough, new business will go down and the existing relationships matter. It is important to see how you can get together with your customers and ensure business continuity. Finally, many of today’s unicorns have been founded or built during recessions or downturns – resource scarcity can be a source of creativity and pivoting.

Reima Linnanvirta, Angel Investor and Chairperson of the Board at FiBAN

“Take care of your cash.”

How do you see the situation with COVID-19 affecting the startup and VC scene as a whole?

From an investing point of view, the equity market will slow down significantly. Angel investors and family offices are likely to invest less and focus their investments on their existing portfolio companies. Also, the VCs with existing portfolio companies will focus on supporting their portfolio by follow-on investments and will make fewer new investments. Those VCs that had their closings within the past year and have dry gunpowder in their arsenal will make new investments. However, due to the decrease in available capital in the markets, the valuations will go down.

How is your fund preparing for the upcoming months?

We have gone through the situation with the portfolio companies focusing on three things: 1) How the situations affect our position? Are we seeing decreased demand, delayed demand or increasing demand? Are there new opportunities for us in the current situation? 2) Our operations: What is critical to do, what would be “nice-to-have” and what is useless in the current situation (e.g. focusing on marketing if the customers are not making purchase decisions). 3) Runway: Raising funding in the coming months will be challenging, so ensuring a sufficient runway or even turning the company to a cash flow positive status are important.

What advice would you give Finnish startups now to keep their head above the water?  

Take care of your cash. Close the funding that you can, postpone investments and review your costs. You need to have a runway that lasts until the markets calm down. And it is yet to early to say when that will happen, so a too long runway is better than a too-short one.

Rainer Sternfeld, Managing Partner at Nordic Ninja VC

“Stretch your runway, focus on what matters to grow your company (get rid of distractions), and take care of your people.”

How do you see the situation with COVID-19 affecting the startup and VC scene as a whole?

Every company is impacted by this crisis, whether or not the demand decreases or increases. Resilience of the business models, resourcefulness of the teams, and responsible cash management of the companies are put to the test. This is also an opportunity to start a new company that addresses the real needs of the world.

How is your fund preparing for the upcoming months?

NordicNinja has a long-term view, and we are not going anywhere. We continue to work with our portfolio companies and help them grow. We can leverage our partnership network. We continue to seek out the best entrepreneurs.

What advice would you give Finnish startups now to keep their head above the water?

This is an opportunity to make your company self-sufficient. Stretch your runway, focus on what matters to grow your company (get rid of distractions), and take care of your people.

Pauliina Martikainen, Investment Director at Maki.vc

“Have honest conversations with your existing investors immediately to ask them about their appetite for a bridge round.”

How do you see the situation with COVID-19 affecting the startup and VC scene as a whole?

As everyone is starting to be well aware of, the pandemic is taking a toll: startups’ customers – big and small – are experiencing huge uncertainty and closing new clients is getting very tough.  While I believe that Europe will have the pandemic under control in the course of this spring, the economic implications are likely to affect businesses for a long time after. The mid- and long-term impacts vary between companies, some face great opportunities while others are likely to be heavily impacted by the following recession and changes on the demand side. We’re going to see overall VC investment activity going down, as VCs deploy slower to maintain reserves to help existing portfolio companies, and struggle to raise new funds from LPs whose portfolios are heavily exposed to public markets. 

How is your fund preparing for the upcoming months? 

We are very much open for business, evaluating new investment opportunities as well as working hands-on with existing portfolio to tackle the ongoing COVID-19 crisis and following recession. All CEOs and founders need to prepare for tough times ahead. Many are going to have to make some hard decisions, and they will have to show their teams that they can lead them through this. Some of the most critical discussions we’re having with our portfolio companies are around slashing spending as well as taking care of people and showing empathy while doing these tough calls – transparent internal communications is the first crucial step. Act quickly, take the medicine, stand by your decisions.

What advice would you give Finnish startups now to keep their head above the water?

Communicate very clearly to your customers and employees, be upfront with problems and offer solutions when you have those. Abandon your existing business plan, target a certain cash burn rate to extend your runway, be prepared for delays in fundraising processes – and do have honest conversations with your existing investors immediately to ask them about their appetite for a bridge round. Think if there is an opportunity to tune your business model and offering to fit the changed market better – consumer behavior is changing, competitive landscape is changing, and paid acquisition costs are falling which presents an opportunity for the lucky ones.

Jan Sasse, CEO at Tesi

“Most importantly the management teams should demonstrate strong leadership, maintain employee morale and strategic clarity”

How do you see the situation with COVID-19 affecting the startup and VC scene as a whole?
The fundraising market is expected to slow down at least for the time being. This is dependent on the development of overall portfolios and liquidity of LPs, as well as on how long the uncertainty will remain in the market. Investment and acquisition volumes will decrease until buyers and sellers find matching views after the crash in the stock markets. Larger exits will most likely move forward in time, however, the market might offer attractive investment opportunities after stabilizing. 

How is your fund/company preparing for the upcoming months? How should funds prepare for the upcoming months?

Tesi’s commitment in this exceptional situation is to intensify our efforts on all fronts. We have always considered our role in the VC ecosystem as a counter-cyclical investor – while having remained active in new investments during the recent “happy times”, it is now in the new circumstances that our role is likely to become more pronounced.  An essential part of the VC model is that not all companies survive and we do not attempt to change this. Therefore we will prioritize our efforts and investments into companies (whether in our own portfolio or in the wider ecosystem) that have demonstrated a viable business model and positive valuation development prior to the crisis but are facing an urgent capital need because of sudden changes in their business environment, investor activity or both. Our job is to figure out together with the management teams and our co-investors what is the new realistic basis for the growth of the business, and the appropriate funding solution to make it happen. In addition to looking at historical merits of the business we will, of course, need to be comfortable that the growth can be re-established.

For funds, cash is king: if you or your portfolio companies are fundraising, accept commitments/capital also in smaller amounts and batches. Stay connected with your peers, LPs and portfolio companies to keep an updated view on the situation and forward it to your portfolio companies. Prioritize – put your efforts where they are needed the most and where they create (or maintain) the biggest value. Make sure that portfolio companies have enough cash, make cuts and hold back growth investments when growth does not take place in line with original plans. Keep in mind that the conditions might still deteriorate further but at the same time keep also an eye on new business opportunities.

What advice would you give Finnish startups now to keep their head above the water?

In an uncertain fundraising environment, all VC funded companies should seek for ways to extend their cash runway. As a starting point, you should make a realistic assessment whether the previous assumptions on revenue growth are still viable (most probably not). Then look at ways to adjust costs – often first by postponing growth-related investments and operating costs, however depending on the gravity of the impact also wider cost-saving actions may be necessary. Companies will face tough times but most importantly the management teams should demonstrate strong leadership, maintain employee morale and strategic clarity, bearing in mind that often the best companies are created during economic crises.

Oskari Tempakka, CEO at Wave Ventures

“Hype will disappear during a crisis, but world-class solutions are hard to ignore.”

How do you see the situation with COVID-19 affecting the startup and VC scene as a whole?

The current situation comes with lots of uncertainty, which will definitely slow things down a bit. The verticals that are affected most will see a large decline in investments, but otherwise, we are optimistic about the future. There is lots of money on the market, and while we see the number of closed funding rounds slightly decreasing, it is likely that funding rounds will increase in size to increase runway while valuations decrease due to uncertainty.

How is your fund/company preparing for the upcoming months? 

We are taking it one day at a time and focusing on making sure our portfolio companies have all the support they need for the upcoming months. Regarding our investment decisions, we have added extra effort to analyzing macroeconomic-related risks facing the startups we are considering investing in.

What advice would you give Finnish startups now to keep their head above the water?

Cut down on unnecessary costs to extend the runway in case the economy goes south for a longer period of time and focus on building stellar products and services. Hype will disappear during a crisis, but world-class solutions are hard to ignore.

Tom Henriksson, General Partner at OpenOcean

“Don’t forget to explore innovative, perhaps even radical, ways to secure new customers and deliver value to customers” 

How do you see the situation with COVID-19 affecting the startup and VC scene as a whole?

COVID-19 has certainly “stopped the music,” i.e. the growth of the startup and VC ecosystem, for a while. A global downturn will result in companies growing less rapidly, and in turn, make VCs more careful in selecting new investments. Currently there is, however, more capital than ever in VC funds, so startup investing will continue albeit at a slower pace and with more modest valuations.

How is your fund preparing for the upcoming months?

We have discussed and shared best practices for remote working, as well as tactics for surviving in a downmarket, with our portfolio-companies. We are in close dialogue with each portfolio-company to ensure they have realistic plans and capital to weather the storm. 

What advice would you give Finnish startups now to keep their head above the water?

It is always dangerous to generalize, but here’s a brief attempt: 

Unless you have one of the very rare startups, that is growing profitably and/or have solutions which may even experience increased demand in this market, we would advise you to:

• immediately cut all non-essential costs and freeze new hiring
• re-evaluate your customer churn assumptions and sales pipelines, as some of your customers will fight for their survival and will just have to cut costs massively
• consider your forward budget with a dose of ultra realism, and make sure you will survive for at least 12 months even in the worst-case scenario
• not forget to explore innovative, perhaps even radical, ways to secure new customers and deliver value to customers
• we obviously assume you have already taken measures to make sure your teams stay healthy and work productively in the new context

Moaffak Ahmed, Founder of Cooler Future, Partner at Nordic Makers and Sisu Game Ventures

“I’d advise focusing on the essential: solving important, meaningful problems”

How do you see the situation with COVID-19 affecting the startup and VC scene as a whole?

In the short term, this is obviously a human tragedy, especially for those affected by the virus or its direct consequences. Lives will be lost, companies will go bankrupt, and people will lose their jobs. In the mid-term, this might have significant repercussions. In fact, most likely there won’t be a return back to “normal”. We have witnessed how vulnerable the world is, and how we’re very dependant on optimised supply chains. If, for instance, manufacturing were to be closer to home, would you want to pay 50% more for that flat-screen TV or a new iPhone? OR… perhaps the really important question is: do you really need a new phone every year? The crisis will most likely lead to re-evaluation of many practices and values, how we think about consumption, (business) travel and many other aspects that we’ve been taking for granted.

Maybe this is the wake up call that the world has been waiting for. Maybe not. Who knows. 

How is your fund preparing for the upcoming months?

The first priority is supporting existing portfolio companies, helping them build scenarios. How to extend runway, re-evaluate business model, target markets, etc. However, we’re also making new investments. Some of the best companies were created amidst the worst crises, for instance: Apple, Disney, IBM, and Microsoft.

What advice would you give Finnish startups now to keep their head above the water?

I’d advise focusing on the essential: solving important, meaningful problems; ensuring sufficient working capital and runway. Not everyone is used to working remotely, it can be testing for individuals and their domestic relationships. Remote work can also be challenging for company culture if people think that work is something that (only) happens in the workplace. This is a good learning experience for many. Some might not make it, but those that will, are going to be stronger and more agile than before. 

Stay healthy and take care of your loved ones!

Riku Seppälä, General Partner at Icebreaker.vc

“It’s a great time to have less meetings and learn how to do international sales”

How do you see the situation with COVID-19 affecting the startup and VC scene as a whole?

The situation affects VC funds’ ability to raise more money in the future and startups’ ability to grow their business. This all has an impact on startups’ fundraisings and cashflow. We’ve heard of some funds that have decided not to make any new investments at least for a month forward. 

LPs (the investors of the VC funds) have to think about where and how much money they allocate to VC in general now when stock markets have dropped significantly. Especially institutional LPs have strict allocation policies that guide their investments. In the long run, this affects VC funds’ ability to raise funds, so they will have to spare capital and therefore be very selective which startups they invest in.

How is your fund/company preparing for the upcoming months?

First of all, we are all working remotely and priority is on containing the spread of the virus. With the portfolio, in addition to ensuring their wellbeing during the crisis, we are promoting distributed work, reviewing cashflow calculations, sales pipelines, supply chains and sharing resources & people among the portfolio. We’re working with our portfolio companies to figure out every way possible to create stronger companies even in these circumstances.

What advice would you give Finnish startups now to keep their head above the water?

Take care of your families and yourselves. Do everything not to spread the virus – i.e don’t meet people or move in crowds. Handle immediate risks such as supply chain and cashflow. Call your customers and offer your support and help. Plan for the next year with much lower sales than planned and execute accordingly (50% lower gross sales and higher churn). Figure out sales & marketing without meetings online which offers benefits in terms of faster sales lead times and lower customer acquisition cost. Repurpose sales reps for inside sales and upselling. It’s a great time to have less meetings and learn how to do international sales as you don’t really have the advantage of being “on the ground” in a specific geography. 

Timo Ahopelto, Founding Partner at Lifeline Ventures and Chairperson of the Board at Slush

“I encourage everyone to think of alternative future scenarios”

How do you see the situation with COVID-19 affecting the startup and VC scene as a whole?

The situation divides companies. Some are truly unaffected or even see an increase in their business. The others suffer really bad. Many of the latter category can, unfortunately, cease to exist. I am seeing that VCs are also divided: some eagerly make new deals and some are focusing only on their existing portfolios. In any event, fundraising is more difficult but not impossible if you established the relationship pre-corona.

How is your fund/company preparing for the upcoming months? 

We are planning how our companies exit the crisis stronger when this ends. We see this as an opportunity to grow and gain market. 

What advice would you give Finnish startups now to keep their head above the water?

Too many companies are too optimistic. I encourage everyone to think of alternative future scenarios. Then, make sure you survive also in the very worst one. This is not being negative, it is being smart.

Riku Asikainen, Managing Partner and Founder at Evli Growth Partners

“We are putting even more effort to understand and help the companies with their unit economics and cash flows”

How do you see the situation with COVID-19 affecting the startup and VC scene as a whole?

The most important thing is, of course, now in the short term, to put the health and safety of all the employees and their loved ones on top. This is a great time to show that you care and appreciate them. However, in the long run, I’m sure this situation will lead to a recession or severe downturn and, that will affect the whole economy, including startups and VCs. Funding will be tighter for the upcoming quarters or up to next year so it’s important to carefully manage cash flows and burn rates. However, there are great business opportunities available for the most daring companies during the downturns so I encourage the founders to grasp the situation as an opportunity for new business and growth.

How is your fund/company preparing for the upcoming months?

We are carefully following the situation day-by-day and helping our portfolio companies with their contingency plans and to identify the best new business opportunities. We are looking for new investments as usual but, at the same time, putting even more effort to understand and help the companies with their unit economics and cash flows.

What advice would you give Finnish startups now to keep their head above the water?

As I wrote in our blog last weekend (https://egp.fi/is-your-start-up-corona-ready/), I think there are five main things to focus on at the moment:

1. Take care of your people
2. Back to the core business
3. PPS (people, product and sales) and check your pulse on product-market fit
4. Not the survival of the fittest but the last one standing
5. Call your mother today, she would like it 🙂