Be prepared for worst, re-adjust if situation improves: VCs' advice to start-ups on COVID-19 crisis

Venture capital firms including Accel, Kalaari, SAIF Partners and Sequoia have advised start-ups to be "prepared for the worst", and urged them to adopt options like pay deferral and reduced salaries for workforce instead of slashing jobs in these difficult times.

In an open letter to start-ups, these VCs pointed out that start-up founders will "inevitably be faced with difficult decisions" on execution for the next 21-30 days, and on how to plan for the next 12-18 months.

"As early-stage investors in India, we are a group that is unequivocally bullish on the long-term outlook for the start-up ecosystem. We believe in our founders and teams, and wish everyone the best in navigating through this extremely turbulent and stressful time," the letter said.

The firms offered advice on a number of issues, including fundraising, managing employees, business continuity plan and communicating with investors and stakeholders.

The 21-day lockdown across the country -- enforced by the government to contain the spread of the deadly coronavirus infection -- has been challenging for businesses, especially start-ups in the country. There have been a number of reports of start-ups and digital businesses laying off staff and slashing salaries as they look to cut costs and rationalise operations to get over these difficult times.

The letter pointed out that the macro situation is constantly evolving and adaptability of all plans would be key for start-ups.

"Be prepared for the worst; then readjust if situation improves faster... Taking a 'wait and watch' approach before taking any action in the hope that clarity will emerge is not a good idea in a situation like the one we're in," it said.

It advised that for most companies, the priorities should be "employee safety first, business continuity second, and liquidity and runway, a key third".

The firms advised start-ups to look at people costs only after all other costs are reviewed and reduced, and that they should stay updated with government directions (both central and state) on dismissal of employees, reduction of salary, etc.

It added that if organisations have to undertake steps to cut employee-related costs, they could explore options like pausing hiring, re-aligning roles, changing appraisal systems, pay deferrals and pay reduction.