While it may be tempting to smile and nod approvingly at this dose of business reality, there's a ripple effect to be aware of.
As reported in the May 31 edition of the Wall Street Journal*, "Their advice includes cutting costs, preserving cash, and jettisoning hopes that hedge funds or other investors will swoop in with big checks."
- "The cost of capital has changed materially, and if you think things are like they were, then you are headed off a cliff like Thelma and Louise," wrote Bill Gurley, a partner at Benchmark Capital.
- Sequoia Capital "advised companies to cut expenses quickly and preserve cash. Companies need to control spending, focus on quality and lower risk."
- "The boom times of the last decade are 'unambiguously over,'"asserted Lightspeed Venture Partners.
- Y Combinator "is urging founders to cut staff, reduce ad spending and raise prices."
Because many of these firms are likely ones that you have begun using, whether to source product (online wholesalers), host your e-commerce operation, provide delivery services, provide your payment processing, or POS services, or payroll services, or do your bookkeeping, etcetera.
- What actions will they likely take to please their investors?
- What might their scramble mode to focus on profitability look like?
Today's announcement about venture capital money's warnings to tech startups may seem a distant issue. But we see it as a major "heads up." Better to be advised than blind-sided!
* "Startups Get Tips on How to Stay Afloat," Meghan Borrowsky and Vital Monga, The Wall Street Journal, May 31, 2022.