After years of free-flowing capital, Silicon Valley startups and VCs have a newfound obsession with cash


Fortnite (loot chest)

Venture capitalists and their portfolio companies have placed a newfound premium on cash in the wake of the coronavirus crisis.
Prior to the COVID-related downturn, money was free flowing in Silicon Valley; now, though, not so much.
Venture investors have pushed their portfolio companies to cut expenses and find alternative sources of money to extend their so-called runways to as much as two years worth of cash burn.
Thus far, the focus on cash has worked; the investors who spoke to Business Insider said they hadn’t yet had to shut down any of their portfolio companies.
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Until about three months ago, startups in Silicon Valley gave little thought to a seemingly important business detail: cash.

Money flowed freely in the valley before the coronavirus, and founders and venture capitalists didn’t much worry about how much cash companies had on hand. “In the pre-COVID environment … if you don’t get a [funding] term sheet in a month, there’s probably something wrong with the company,” Matt Murphy, a partner with Menlo Ventures, told Business Insider.

Things were so good for startups that investors often sought out founders before the latter were even looking to raise capital, he said, adding, “that’s all changed now.”

Suddenly cash is king, as the frightening reality of a slowing economy has caused the commodity’s value on a balance sheet to appreciate considerably in the eyes of both startups and their VC backers.

In an effort to control the pandemic, governments around the world limited their citizen’s movements, which in turn throttled economic activity. Consumers have cut their spending. With their revenue drying up, many companies have cut their budgets and workforces.

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While many venture firms had uninvested capital in their funds before the onset of the crisis, many have been trying to conserve that cash, both to buoy their existing startups and to invest in new ones. To ensure that their portfolio companies survive the crisis, many VC firms have been pressing those startups to figure out how to stretch their cash.

The mindset concerning cash has shifted dramatically


Before the downturn, startups typically had less than a year of cash on hand, or maybe 18 months worth at the most, Murphy and other venture investors said. Some companies set up lines of credit or debt that they could tap into if cash ran low because a financing round lasted longer than expected, Murphy said. But venture investors …read more

Source:: Business Insider

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