A few days ago Claire Bahn, CEO of Stratus Branding, was able to sit down with serial Angel Investor, Jonathan Hung, for a quick 10 part Q&A on his take of the current state of the angel investing landscape and how startups should navigate the post-COVID-19 financial landscape.
What follows is Part 1 of the two-part Q&A where Claire interviews Jonathan about the most pressing issues for Startups working through this economic turmoil.
Here is a little background on Jonathan Hung:
Jonathan Hung is a transformative Los Angeles angel investor and venture capital partner who believes in a bright future for businesses seeking to broaden their horizons in North America and Asia. One of the most active angel investors in Southern California, his mission is to drive value creation within each portfolio company. In support of this mission, he serves as Co-Managing Partner at – Unicorn Venture Partners – providing a hands-on approach to supporting companies by offering strategic expertise in operations management, finance, business development, multinational business strategy, entrepreneurship, networking, data analysis, and leadership.
Jonathan and his team target investments in US companies that have global market potential with a focus on long-term growth expansion to East Asian markets.
Here is Part 1 of the interview:
What follows is Part 1 of the transcript of that interview: [Edited for brevity and continuity]
Claire Bahn: Jonathan thank you for taking the time to sit down on a Zoom call with us today to answer some pressing questions for our viewers. I know you’ve been an investor and businessman for a long time and definitely have seen your fair share of ups and downs. I’m looking forward to your feedback to the questions I and our viewers have regarding the economic impact of the current crisis especially how it affects startups looking for pre-seed and seed-stage funding.
Jonathan Hung: Claire, I’m glad to be here and I hope I’m able to help in some small way.
Claire Bahn: Ok so let’s jump right in, how do you see the COVID19 outbreak changing the Seed stage and pre-seed stage Investing landscape?
Jonathan Hung: Well, I think from our point of view right now with COVID-19 is going to change how many people are really willing to write checks right now. As I’ve as I said, I’m an LP. I was always an LP. I’m an LP in a bunch of different funds in Los Angeles from Wavemakers of Fika to Bam Ventures and you know, people are writing emails to their LPs wondering what to do next. Listen. We’re in some crazy times right now.
We gotta be really, really careful to make sure that our companies can grow after this is over. We are not going to invest in new companies right now. We’re going to make sure that the cash flow exists for all our current companies is in the portfolio. We have to make sure they have enough to withstand this current recession because we have no idea how long it’s going to last. So I think that everybody, that all their forecasting for 2020 totally has to go back to the drawing board and see what to do because the markets are totally different now.
Claire Bahn: That’s great feedback! Here’s another question for you. In an economic downturn, what do you suggest startups do for damage control?
Jonathan Hung: You just really need to prepare for the future. Is this a good time to do that? Definitely.
In my opinion, if you’re fundraising, you should always be changing up your pitch anyway. Ideally, you are changing your pitch monthly, even better – change it weekly. Just kidding! But you should be adjusting your pitch monthly because things change on a monthly basis.
I remember when I was working at Morgan Stanley as a financial advisor. We had a new CEO she’ll come in and she said well listen if you’re doing the same thing you were doing five years ago. There’s something wrong with what you’re doing because nothing stays the same, everything’s always constantly changing and changing.
There are new products that your competitors release, you might have new competitors emerge. How are you creating the most around your business? So I would say definitely redo your pitch deck and especially forecaster numbers. You don’t need to go out 5 years but if you do a year to 18 months focusing on Use of Funds, that should be good enough right now.
Claire Bahn: Ok so here is a question sent in by one of our viewers, “What do you tell your portfolio companies to do for risk mitigation?”
Jonathan Hung: We have a beverage company in our portfolio right now, which you know, they were doing great. Unfortunately, because of cash flow issues and with everything slowing down they’re going to run into potential bankruptcy. So, fortunately, we were able to raise enough money to get them another six or nine months of Runway.
Right now what we’re going to do is this we need to reassess monthly whereas in the past, maybe it was just quarterly.
If things change it might be weekly. I’m going to be in frequent contact because I can’t invest in other companies right now. I have to make sure the companies that we have in the portfolio can last longer and longer.
I mean venture it’s not always a slam dunk. Obviously, there is a high-risk factor. If you’re hitting 20%, you know batting 200 then that’s pretty good. You’re going to go to the hall of fame for venture capital, but right now it’s okay to sit back and focus on your existing portfolio companies.
I mean, especially these trying times… I just remember when I was a financial advisor in 2007 and you had clients who want to sell when their portfolios were down 30% to 40%… and imagine if they just held they would be even higher than they are now. Even though with this pullback they would have been better than where they sold back in 2008 to 2009.
So you just have to follow a strategy together with your investors. You need to make sure you’re communicating weekly and that you’re hitting your weekly targets.
Right now there is a lot of fear so it’s a hard thing, you’re thinking about your portfolio’s and there’s a lot of fear, so it’s kind of not giving in to that fear just you know getting a strategy, setting a plan and sticking to it.
People aren’t writing out checks or wiring money right now. That doesn’t mean they won’t when things start to get less murky and more clear. So keep having those conversations [ with potential investors]. I told the CEO of our Beverage Company “just because you got this money [from us], which doesn’t mean you stop raising all together”, It’s better to constantly be raising. And sometimes people need pressure in order to do better. I just need a little pressure because it helps me focus my time better.
Claire Bahn: Well then, this is a question that I’ve had to deal with and one many other business owners have had to deal with. I’m sure many startup founders would like to know your opinion on this. Is this the right time to reduce headcount and start outsourcing?
Jonathan Hung: I learned this when I went to MIT and it’s a standard answer to everything.
“It just depends.” Okay, because you could be in a growth stage then, how can you get rid of your Chief Marketing Officer when you need to get more of your product out and reach your audience? I mean really good companies can’t get rid of their Chief Marketing Officer right now.
You might need to cut back on Facebook Ad spends and Google’s ad spending, but that doesn’t mean you get rid of the person who’s in charge of all this because they have to be able to keep the marketing rolling.
It also depends where you are in the [funding] stage … if your early stage and you’re just trying to get that first check. It’s fine, you might need to reduce marketing headcount.
Pre-seed and seed-stage companies don’t really have, necessarily, a business development person or a marketing person yet. So you’re not spending that much on these positions; but maybe you do need to CTO. I mean you’re going to have to maintain the systems and if you’re a tech company, you’re going to get the application out there.
The truth is whether you’re a tech company or consumer products company, if you do have a lot of full-time employees then you might need to switch to Outsourcing to reduce cost.
Outsourcing doesn’t make sense for certain roles because you know, you still have to get on the phone. Your sales guys or saleswomen need to be selling even when things are fluid. I mean you still have all these contacts you had before. In the past you were out on the road hustling and meeting people now, it’s just you got to do it over the phone and it’s a totally different experience.
So maybe you need to find people better tailored for [ virtual sales] that, you know versus people who just need to meet in person, so I think really it depends on what the situation is and what you can stand to do.
I think the government’s big stimulus package is another variable we need to pay attention to.
I remember when they bailed out, you know Banks and mortgage lenders Back in the Day in 2008 during the Great Recession. I’m curious to see what they’re going to call this period in the history books.
I think that it’s important for our portfolio companies to remember that they are not just getting our money but also our experience. I’ve been through [these types of economic disruptions] before. So I’m happy to share what I think you should do during this time. However, ultimately, it’s your decision as the entrepreneur to do what you want to do for your company. We need to get all the information we can and then offer the best advice we can. I think this is the right decision.
Stay tuned for our next installment, Part 2 of Claire Bahn’s interview with Jonathan Hung where they will be discussing the latest technology to help startups find investment during this crisis and if startups should be hiring new talent during this time and so much more!