Looking for the Bright Spot in a Downturn: Takeaways from Aumni's Investor Roundtable

During our recent roundtable webinar we had the unique opportunity to discuss today’s market conditions as seen through the lens of three experienced investors. The past decade has spoiled us. Many have seen continuous year over year growth in deal flow, valuations and number of exits. The tide is shifting now and some fear we are facing the start of a downturn — an event many emerging fund managers have never experienced.

The challenge is to find the silver lining.  

Our panelists had a lot to say on what they’ve experienced in previous downturns. They also discussed what we can learn from this challenging time and how there can be opportunities for companies that are well positioned, particularly those that have a creative solution and vision. The tables have flipped for everyone, leveling the playing field in some ways.For example, Lokesh Sikaria, Entrepreneur and Founder of Moneta Ventures, shared with us that when he started his business in 2007, just before an economic downturn, this actually represented an opportunity:

People who were well entrenched with their incumbents now suddenly had to look for other solutions. The status quo was no longer acceptable. That allowed a startup like ours to be able to get an audience and some incredible customers who typically, in a normal situation, would not have given us that access. I think the experience... [showed me] that these times can actually be an amazing opportunity, particularly for early stage companies to meet the needs of their customers.

A down market offers a chance to strengthen core business functions (think technical teams, software development, marketing and sales staff). Our experts agreed that now is the time to train teams, develop marketing messaging, polish collateral, etc. Sikaria encouraged companies to “...have those interactions you perhaps couldn't have when they were constrained by time. What better time to get feedback and let the sales team have better training around your products and services? What better time for them to give you feedback? What better time to create marketing collateral that might be useful?”

Go back to fundamentals and focus on the new normal.

In trying times, it is natural to pause and take stock of what makes us special at our core and to strip away all the unnecessary layers. In a down market, companies are doing something similar, and investors are making note of it. Sarah Imbach, Angel Investor, Advisor, and Entrepreneur shared:

The biggest shift over the last six to eight weeks is a refocus on fundamentals. At the end of last year, maybe even six months prior to that, a lot of the things that I was seeing coming in, as people [were] looking for their first money, were nice-to-have's. They weren't fundamental to businesses. They weren't fundamental to revenue flows. They weren't fundamental to consumer behavior. I think that ship has sailed, at least for the time being. Only the companies that are really fulfilling those primary needs are going to be interesting for at least the next 18 months as new opportunities for leaning in.

So where do we see those fundamentals more specifically? Here are a few takeaways from the group:

Look for sales efficiency and a short path to profitability.

According to Sarah Imbach, companies that are breaking even have a better chance of survival because access to capital may be highly restricted: "Those KPIs around the virality effect, the K factors, the sales and marketing efficiencies, the go to market channel efficiencies -- all of those are far more important because there's less time to mature them than even three, four months ago.” 

Lokesh Sikaria echoed this sentiment, which has been historically part of his company's investment philosophy, saying that it has been vital to focus on companies that are capable of getting to profitability in a short time period because they could never be sure of additional funding rounds and the availability of capital. He added: "That philosophy is actually turning out to be very useful in this ecosystem where now everybody is operating under those same rules and you cannot count on follow-on funding, and [whether or not] you have the ability to get to profitability soon."

Think strategic and revisit core metrics and milestones.

When the economy is taking a turn south and all the plans you made yesterday are now in question, it is all the more imperative to reexamine your plans. Dan Goldsmith, CEO, Advisor, Investor, Board Member shared:

I'm reminding companies to think from an operational and strategic point of view, to really revisit what their strategic metrics and imperatives are... Great leaders are not defined or enabled by [their] ability to create a good plan. It's [their] ability to figure out what to do when things don't go as planned. For example, are you focused on the right customer segments right now? Do you need to double down in certain areas that will create more momentum and are other areas going to move slower? How are you looking at some of your product investments you're recruiting? The strategic imperatives and major business objectives that many companies may have set out on January 1st need to change. You can't just stick your head in the ground and follow the same metrics and goals.

Take a scientific approach to decision making.

Dan Goldsmith also addressed how organizations should apply a much more scientific approach in thinking through their market to market focus: "I'm looking for companies that can sustain [themselves] in the markets that they're focused on, and have expandability to additional markets. So whether we're in an uptick, or a downturn, or whatever, they have places they can go to continue to not only sustain the company, but continue to grow the company." This scientific-oriented decision making, as he called it, enables us to think about the necessary metrics, as well as what is working versus what is not working, with more perspective and pattern recognition.

Act with precision and look at short and long term implications. 

Dan Goldsmith also warned against going overboard with cutting costs or curbing investments. He said: "If you do [this] in either a peanut butter way, where you're spreading that pain across, or you're doing [it] in a large swath way instead of a surgical way, you can actually do a lot of harm." He thinks it's vital to be very specific on the short term implications and benefits of cost-cutting measures versus the long term implications and risks associated with those measures. "You really need to weigh both of those into account to make the smartest decisions right now." 

Investor philosophies from three respected voices to guide us in these uncertain times.

With so many great insights, the team also left us with some nuggets of wisdom to light the way. 

• If people aren't focused on actually moving the needles that matter, they're focused on the wrong things. It is not about a perfectly smooth, plotted course to some destination in the future. It's only the needles that matter. If I wouldn't hire these people to run this company for me, I'm not investing in them. - Sarah Imbach, Angel Investor, Advisor, Entrepreneur
• If your gut says no, trust your gut. If your gut says yes, trust the facts. More than  ever now, really go to the facts when you're looking to invest. - Dan Goldsmith  CEO, Advisor, Investor, Board Member
• What can you do today for the next eight or 10 hours? Sometimes in the world, there are too many issues, too many things you have to think about. It can get overwhelming. Break it into small pieces. Sleep, get up the next morning and start again. - Lokesh Sikaria, Entrepreneur, Founder Moneta Ventures