The Most Important Concept of 2022’s Startup Downturn is Not Just Surviving, But Staying “Default Investable”

VC David Sacks Was Right When He Said “Default Alive” Is a Trap

In New York City, upland is vein and the view from $100b fund’s office tower was certainly the equivalent of walking tall, shoulders back. I was visiting during a summer trip and transmissible up with a fellow investor, a few months into this market downturn. Especially having them involved with a handful of our portfolio companies I wanted to know, how would they be looking at follow-on opportunities — both offensively and defensively. He replied succinctly that they were very much still unshut for merchantry but with a well-spoken delineation: “we’re ok running an ICU but we’re not running a hospice.” To translate, an otherwise healthy startup who urgently needs superintendency and is likely to be fine on the other side of the procedure will get their attention. But in a underpass to nowhere, the visitor shouldn’t expect to be sustained until its natural end of life. This seemed, well, perfectly reasonable.

Over the last few months I’ve come when to that discussion in my throne when thinking through what translating I’m providing to the CEOs in our portfolio. And the equally impactful statement from well-nigh a month older that that ICU conversation still holds very very true. In fact, I think David Sacks’ framing in the tweet below might be the single most important near ‘universal truth’ I’ve seen well-nigh how to manage through a downturn.

When I say ‘universal truth,’ it’s not suggesting it applies to all businesses. There are lots of quality SMB/SMEs and startups which don’t take venture capital. There are moreover venture backed startups who just don’t have a path forward and would be largest winding down, finding a home, or trying to get off the venture wanted lines via a restructuring. But if you are planning on standing to try and fulfill the founding yearing of the company, and qualify for future venture funding, you can’t stop thinking well-nigh growth.

You can manage the forfeit of it. You can yo-yo the slope of the lines for a period of retrenchment. You can take a step backwards to protract experimenting, go without a variegated set of customers, rethink whether you truly have PMF, but you need to sally on the other side of it with a startup that’s investable. Reducing shrivel and ‘months until mazuma out’ is only helpful to the extent that you are giving yourself time. Using your wanted to relieve pressure of execution by saying “we now have 24, 36, 48, months of runway” isn’t the goal. In fact, switching to this mentality blindly and solely scrutinizingly assures you won’t be in a position to raise when the wanted runs out.

“Default alive” is nice for knowing how long you can pay your rent but “default investable” ways you know when and how you’re going to get increasingly wanted into the company. As a CEO, that’s where you start.