Startup Cash Management During COVID-19
Recently there has been some good news - it appears we may have reached a plateau of new COVID-19 cases and deaths, but exactly when we can reopen the country will remain a hotly debated topic for the foreseeable future. For now, social distancing and uncertainty remain our new-normal.
I will provide what thoughts and advice I can regarding acquiring capital during these difficult times. As a reminder, our firm advises companies who seek to secure capital facilities (growth and working capital, CAPEX, AR/PO financing, etc) from venture debt funds and banks. So, with that in mind, today I’ll share some thoughts as to how lenders look at liquidity when evaluating a loan opportunity. My comments will assume our client is still burning cash, but on trajectory to break even at some point in the future, and chooses to meet all or part of their need with non-dilutive debt financing.. .
The old adage, “It’s best to look for cash when you have some” has never been more true. Most companies we advise are in one of two situations.
The company has 9-12 months plus of runway when taking into account cash on-hand and monthly burn. - this scenario provides the most options. Companies may choose to wait to secure capital if necessary until market conditions improve. Sometimes we advise clients to hold off if we believe terms will be more favorable in the coming weeks. This is somewhat common at the moment, but not universal. There are still very favorable terms available for strong companies.
The company has 9 months or less of runway when taking into account cash on-hand and monthly burn - this scenario is increasingly common due to reductions in revenue, planned equity raises on hold, etc. The good news is that there are still options available. Some lenders specialize in a true bridge loan to provide working capital until an equity raise is again an option or market conditions normalize. These facilities can provide much-needed resources allowing companies to continue operations and growth efforts. Terms are generally short - 12 months or so, and rates are higher than more traditional venture debt facilities, but used to bridge a financial gap, they can be lifesavers.
We do not advise or specialize in the SBA and other federal and state programs available to business. We would suggest all businesses look into these programs if they haven’t yet done so. Our lenders have indicated utilization of these sources shouldn’t be an issue with current or future funding plans.
As always, should you have any questions, please reach out to us. We’re here to help. Stay safe.