Silicon Valley's most famous startup incubator chimed in on the state of the public markets, warning that things don't look good.
In an email sent to company founders, Y Combinator, which has birthed the likes of Airbnb, said a large number of its portfolio companies have reached out for advice on how to react to the current economic situation.
The email said that economic downturns often become huge opportunities for the founders who quickly change their mindset, plan ahead, and make sure their company survives.
The email was shared with a reporter. YCombinator did not respond to a request for comment.
The US may be heading into another recession, but it will likely be different than the last two, according to some economists. Insider was told that a looming recession would be more like a correction to compensate for months of large amounts of spending.
YC gave 8 things to founders to survive the downturn.
This is a safe move according to YC.
If the current situation is as bad as the last two economic downturns, the best way to prepare is to cut costs and extend your runway within the next 30 days. Default Alive is a term referring to a startup that can become profitable before running out of cash.
If you don't have the runway to reach default alive and your existing investors or new investors are willing to give you more money, you should strongly consider taking it.
Regardless of your ability to raise money, it is your responsibility to ensure your company will survive if you cannot.
The poor public market performance of tech companies greatly impacts VC investing. VCs will have a harder time raising money and their investors will expect more investment discipline.
During economic downturns, top-tier funds tend to put cash toward their best-performing companies instead of capital deployment, leading to lower round sizes, lower valuations, and fewer deals.
According to data from CBInsights, venture funding slowed in the first quarter of 2021.
For those of you who have started your company within the last 5 years, ask yourself what the normal fundraising environment is like. Future fundraises will be much more difficult and your experience was probably not normal.
If you are post Series A and pre-product market fit, don't expect another round to happen until you have hit product market fit. The Series A Milestones we publish here might turn out to be a bit too low.
If your plan is to raise money in the next six months, you might be raising at the peak of the downturn. Even if your company is doing well, your chances of success are very low. You should change your plan.
Many of your competitors will not plan well, maintain high burn, and only figure out they are screwed when they try to raise their next round. You can pick up market share in an economic downturn if you stay alive.
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