How to Ensure Your Startup Survives COVID-19

Jonathan Ellis
5 min readApr 21, 2020

This article was first published by Chicago Inno on April 7th 2020 at

A black swan is a metaphor for a catastrophic, rare event that comes as a surprise. Since the global financial crisis of 2008, I have kept a small figurine of a black swan on my desk to remind myself to balance optimism with caution. Even so, the speed and severity of the impact of the COVID-19 pandemic caught us all off guard.

If you are a founder or CEO, it is time to put on your wartime hat. It is time to go into survival mode. This will pass, but like the public health response to COVID-19 itself, it is better to do too much and have it look like an overreaction in hindsight than to do too little, too late. Do not assume this will be over in a few weeks, and do not assume a sharp recovery. It will take time to rebuild confidence and for us to return to normalcy. To be well-positioned, focus on proactively managing your cash flow, team and investors.

Cash is king — I cannot emphasize this enough. If you have put off building a detailed cash flow forecasting model, now is the time. You need to understand what every business decision will mean for your burn and runway, plus be able to stress test your forecasts. Hope for the best, but plan for the worst in your scenarios.

Maximize near-term cash revenues. Experiment with promotions, discount to close pending deals or be paid upfront, push for longer-term contracts with early termination penalties if possible. Bookings will slow or stop, so do not assume that salespeople will be able to hit their original plan in your revised projections. Churn will increase as customers cut anything non-essential. Revenue only materializes as cash when you get paid: accounts receivable will increase as customers delay paying their bills and bad debts will increase as customers owing you money cannot pay you.

Customer success will mean customer retention, empathy and flexibility. Take the time to understand what is really going on with your customers; do not just sent a mass email about COVID-19. Making concessions may be detrimental to your own top-line near-term, but will keep your customer base intact, and save the time and cost of reacquiring them.

If you are losing money on customer acquisition, pause it and conserve the cash for now. What do your marginal unit economics really look like? Investors will not expect up-and-to-the-right charts during this time of crisis. Instead, spend time building out content or case studies to support future efforts. You may also want to re-evaluate your messaging and positioning in this climate. Above all, do not appear tone deaf.

Sadly, many startups have had to reduce their labor costs by laying off underperforming or non-essential staff, or furloughing some of their team. At Sandalphon Capital, some of our portfolio companies have instigated across-the-board temporary salary cuts. If you choose to defer a portion of compensation, remember that you are essentially accruing more debt. You could consider offsetting cuts with accelerated vesting or additional option grants. Look into the refundable tax credits available under the Families First Coronavirus Response Act.

Make sure you talk to an HR professional or employment law expert to understand the legal nuances. Support laid-off employees in finding their next position as some startups are still hiring. Talk to your landlord about your rent. They want you as a long-term viable tenant and will not be able to replace you anytime soon, so they might be willing to make concessions.

If after all this, you need to raise additional funding in the coming months, now is not the time to optimize for terms. Should your business or the economy deteriorate further, it will be harder to raise when you do need it. Raise additional cash before you need it, and optimize for speed and certainty of close.

Ideally your investors have received regular, transparent updates since they invested as this instills confidence. But if you have been radio silent or have not addressed challenges, asking for more money now may be tough. With regard to the COVID-19 crisis, your investors will want to hear what the impact has been to your revenue and customer base already, what you expect near- and longer-term, what actions you have taken so far, what your revised burn and runway looks like (base case and worst case), and how you plan to address any near-term needs.

Do not assume that your current investors can or will continue to be financially supportive. Find out if they have enough reserves available to deploy from the relevant fund as VCs often cannot invest across funds due to potential conflicts of interest. Consider whether your current angel investors have other cash needs in their personal finances or portfolio. Many institutional VCs and angels are pausing new investments and the bar will be high for those with dry powder to deploy. Be upfront with prospective investors to find out if they are truly actively deploying, or just taking meetings until market conditions recover.

The Payroll Protection Program/CARES Act and SBA Economic Disaster Recovery Loans warrant an article themselves, but look into them as soon as possible (note that concerns around “affiliated company” issues in the PPP for VC-backed companies have been addressed). Venture lenders typically lend alongside an institutional VC round but try to set up a venture line of credit if eligible. Explore alternative sources of capital such as revenue-based financing. Start building relationships with well-capitalized potential buyers or strategic investors, just in case. And allow enough time for an orderly sale process, not a fire sale, to maximize proceeds in an early exit scenario.

Black swan events may be extreme, unpredictable and testing, but they pass. We are all in this together, and we will emerge from this period more resourceful, creative, collaborative and capital-efficient than ever.

These past few weeks have no-doubt been stressful. If you have not been taking time for yourself, close your laptop when you can and give yourself a real break. And watch “Tiger King.”

Jonathan Ellis is the Founder and Managing Director at Chicago VC firm Sandalphon Capital, which focuses primarily on Pre-Seed to Series A stage investing in the Midwest and Midcontinent.



Jonathan Ellis

Sandalphon Capital, a Pre-Seed to Series A stage Midwest/Midcontinent-focused early stage VC firm