In recent weeks, there has been a bustling discussion on survival strategies and advice for startups on account of the covid-19 crisis. Mostly, tips and insights have come from investors, consultants, and governmental agencies. This time, we decided to reach out to startup founders to find out what they’ve actually done to tackle the situation. We interviewed five CEOs from our portfolio companies – read about their responses and thoughts below!
Prioritizing runway and employees
If you run out of cash it doesn’t matter how happy your employees are, but transparent and frequent communication about the situation is important.
Oslo-based Intelecy uses artificial intelligence in industrial processes to make production cleaner, safer, and more efficient. Reduced sales activity has been the biggest impact they’ve experienced so far.
“Intelecy has so far been mainly focusing on the Asian and European market, so already in early February we noticed that factories in Asia stopped taking external meetings, and all new projects were paused. In March, this same pattern occurred in Europe”, tells Bertil Helseth, Intelecy CEO.
Intelecy acted fast, when they noticed the changed situation. “Very early we discussed how to react both inside the company and with our board. We made a list of initiatives that we as a company could do, and communicated this to all our shareholders and employees. The items on this list were things like upselling opportunities, free trials, pivoting to covid-19 related business, consultancy gigs, temporary lay-offs, loans, research grants, and more. Common for them all, to extend runway in case the situation doesn’t improve fast enough”, Helseth describes.
When asked what entrepreneurs should prioritize, Helseth lists two things: “Runway and employees, in that order. If you run out of cash it doesn’t matter how happy your employees are, but transparent and frequent communication about the situation is important.”
Helseth sees the long-term effect of covid-19 in their industry still unsure, but he believes it might bring opportunities for the company: ”On one end it brings a lot of opportunities for Intelecy, as we help with reducing costs and improving efficiency. On the other hand, a disturbance in the global economy is making companies more cautious about new investments. I believe the focus on AI and automation/autonomy is only going to grow due to covid-19, as companies have seen how vulnerable they are, and that is positive for Intelecy.”
Helseth thinks being VC-backed is an advantage in this situation: “I think of the VC’s as business partners and advisors to the company. They want you to succeed and they will protect their investment if they believe there is a big opportunity laying in the future.”
Crisis led to launching of a new product
Practically, we launched a new product, which tackles this current situation and problems related to it.
Augumenta builds easy-to-deploy AR solutions for enterprises. Tero Aaltonen, the company CEO, tells that in the beginning, the crisis complicated daily life quite a bit. A major part of Augumenta’s new customer acquisition was done by meeting people face-to-face, so generating new leads became difficult. However, fast actions improved the situation.
“We applied and received the Business Finland grant, and Finnvera-guaranteed bank loan. Those helped us to repair the cash shortage and lengthen our runway”, Aaltonen tells.
While new customer acquisition had become challenging, Augumenta found new opportunities: “Old leads, that had become cold a long time ago, started to activate. They started noticing that our product selection, that basically enables remote working in factories, makes sense. While new leads have been hard to generate, old ones have been easy.”
Besides changing the customer acquisition strategy, Augumenta seized other opportunities too. Kiilto, a large Finnish company focusing on chemical industry solutions, organized a hackathon with IndustryHack. Industrial adhesives must be tested when they’re sold to new clients, and Kiilto was used to sending their own experts to measure and document the trials locally. Under the new restrictions, they needed an alternative option for cooperating with customers. SmartEyes, a remote collaboration solution developed by Augumenta, was selected as the winner of the hackathon.
“The challenge was to solve how new products can be deployed in factories when industry experts can’t travel. We got an idea to build a product that would be an expansion to our product family. Practically, we launched a new product, which tackles this current situation and problems related to it. Kiilto is now the lead customer of this new solution, and of course, we’ll push the product to the market as much as we can,” Aaltonen says.
Aaltonen believes, that the crisis opens up new opportunities in the long-term. “Industrial digitalization and new habits of working are kind of the things that our business is based on. This crisis forces people to think about how work should be done. I don’t think that the situation normalizes once corona is over – this will cause permanent changes in our working habits. So, in theory, this should help us to advance further”, he states.
Focus on cost-cutting and existing customers
In crisis leadership, soft values are crucial to avoid long-term wounds, but you need to be able to maintain a company, where to process the wounds later.
GBuilder has built the leading real-estate project software, that enables collaboration between office, customer, and construction site. The company CEO, Harri Majala tells that the construction industry is still open, and things are moving forward there. Instead of thinking about short-term effects, he finds it more important to think how the situation affects the economy in the long term: “A couple of weeks or months doesn’t matter that much but it is a risk if the situation changed the fundamentals that affect the whole industry – like the ripple effect.”
Even though the situation is still rather positive in the construction industry, GBuilder has been cutting costs and shifted the business cash flow-positive already in March. Majala sees cash flow as the most important factor that entrepreneurs should prioritize now.
“In crisis leadership, soft values are crucial to avoid long-term wounds, but you need to be able to maintain a company, where to process the wounds later. Cutting costs is necessary. If new customer acquisition is challenging, as it probably is for everyone now, you need to focus on existing customers. Take as good care of them as you can, so that you can keep moving forward. Cutting costs by any means and generating as much sales as possible from existing customers – that’s where you need to put the full focus.”
GBuilder is currently in the middle of fundraising. Majala tells that the process has been affected by the crisis as face-to-face contact with a new VC is usually a must, but he remains optimistic. “Processes have slowed down, but it’s not possible that investors would stop investing. It’s VCs’ job to invest, not to store money. You just need to give the VC the right reasons to invest”, he says.
Majala finds it positive to have VCs backing the company: “If you’re backed by a VC, you’re in the same boat, and no one wants it to sink. We’re glad that we have VCs backing us, so we can plan the next steps and go through the worst scenarios together with them.”
He sees also new opportunities arising after the crisis: “In the construction industry, this crisis has been a wake-up call showing how important it is to digitalize processes so that construction sites and information flow can keep running normally. We just increased the size of our funding round, because when this crisis is over, we are certain that it’s time to push medal to the metal.”
Taking actions that help funds to last longer
Covid-19 has increased the conspicuousness of intensive care and valuation of technologies used there so perhaps investing in them could be seen even more favorable in the future.
Cerenion is a medical device company that has developed the first practical solution for measuring brain function in intensive care. Jukka Kortelainen, Cerenion CEO, tells that switching to remote working and postponing the recruitment of new people have been the biggest changes so far due to covid-19 pandemia. The company is still in the product development phase, so they don’t need to do any strategic changes at the moment.
“We’re postponing the recruitment of sales or marketing personnel at the moment. We raised a €2 million round last fall, and in due to this, our runway is supposed to last until the end of 2021 with the current burn rate. We haven’t made any major strategic changes, but we’ve taken actions that help our funds to last longer.”
However, Kortelainen forecasts that starting sales, which was planned to start immediately after product launch this year, will be delayed. Many expos, trips, and events have been postponed until fall.
“Intensive care units are busy at the moment and not taking any visitors in, so the test runs and trainings related to our technology have been postponed. Doing sales, at least face-to-face, is very difficult at the moment. In addition, the buy-in process in the hospitals is slow which further slows the starting of sales. We’re probably talking about a half-year delay, depending on how long hospitals and intensive care units are in a state of emergency.”
When thinking about opportunities, Kortelainen sees that covid-19 might increase people’s awareness and interest related to treatment of critically ill patients: “Opportunities that I see currently… our latest round was crowdfunded, and covid-19 has increased the conspicuousness of intensive care and valuation of technologies used there so perhaps investing in them could be seen even more favorable in the future.”
Kortelainen thinks that the most important task VCs can do at the moment is to support companies to survive this difficult period, for example by doing extra investments: “Venture capitalists should support companies which’ plans – for example, sales plans – will be delayed if the companies are otherwise healthy.”
E-bike popularity on the rise
Many e-bike sellers, who are mainly selling online, have seen even a 40% increase in sales from last year.
Tampere-based Revonte has created a new type of e-bike drive system with unprecedented properties and ride qualities. The company CEO, Otto Chrons, tells that switching to remote work has worked out fine: “We’re in the product development phase, so there aren’t many things that couldn’t be done remotely. Of course, communication has become slightly trickier when ad-hoc type communicating isn’t possible.”
The virus itself hasn’t caused problems to the startup, but quarantines in China led to some delays. ”We’re making hardware and part of our components come from China. Many of our suppliers were on a forced holiday, as the government shut many factories and offices for weeks, also outside Wuhan. Thus, many things were delayed by 4-6 weeks when people couldn’t work”, Chrons tells.
Revonte is building a third version of the product, and when the prototype is ready, they’re supposed to start visiting clients around Central Europe. That plan might be delayed because of the situation.
“We’ll see when do we get there. Now, this has been kind of ok – because of the delays in China, everything got delayed. So, maybe the impact won’t be that bad once we’re done building the hardware.”
After closing a €1.8 million seed funding last fall, the startup is now raising a new financing round. “We’ve sped up things a little bit to close the round faster. This corona situation causes some uncertainties on the investor side”, Chrons says.
In the long-term, Chrons sees also positive impact arising from the crisis: “It seems that the popularity of biking and e-bikes has increased a lot. Buses aren’t driving, and people are not so fond of using their cars in cities with a lot of traffic, so bike or e-bike is a good option. Many e-bike sellers, who are mainly selling online, have seen even a 40% increase in sales from last year. This has kind of contributed to our business positively in long-term – e-bikes will become more popular in many countries due to this crisis. In that way, there’s also a positive impact for us.” ■