The Smarter Startup

Startup Strategies for Reducing Costs & Bringing in Capital


Start reducing costs now due to the COVID-19 crisis. Work on having a 24+ month cash runway along with implementing these strategies.

Article 3 of a 3-Part Series

COVID-19 is affecting startups in many ways. This blog post on reducing costs and bringing in capital is the third and final post in a three-part series focused on recommendations for startups during the COVID-19 crisis.

In the first post, we focused on scenario planning and ended with how VCs are now advising startups to extend their current runway to 24+ months, regardless of when they last raised capital. In the second post, we focus on the “how” – forecasting, modeling, and waterfall analysis. This post  focuses on strategies for reducing costs and bringing in capital. 

Strategies for Reducing Costs & Bringing in Capital

There are many cost reduction strategies to choose from at a time like this. We have considered the possibilities and narrowed everything down to these key areas and recommendations at this time. The financial situation related to COVID-19 is very fluid, please check-in to the resource center for updates and contact us for advice.

People Cost

  • Delay new hires
  • Don’t backfill
  • Freeze pay raises and discretionary bonuses
  • Consider pay deferrals, pay cuts, furloughs and terminations
  • Consider offering equity in lieu of bonuses/pay raises or to offset pay cuts
  • Value of optionality: contractors vs. new hires

    Working Capital

    • Explore options to tightly manage receivables and expedite collections
    • Evaluate customers financial stability and creditworthiness; re-negotiate terms as necessary
    • Explore options to slow payments to vendors. Some vendors are offering hardship options for subscriptions (e.g., Gusto)

    Bring In Revenue & Minimize Churn

    • Consider offering options to customers to prevent churn (e.g., pauses, downgrades)
    • Focus on getting paid upfront; see if you can negotiate longer pre-payment terms in exchange for discounts
    • Consider offering deeper discounts for a few key deals
    • Consider offering more flexible terms
    • Consider increasing the value of what is offered at each pricing tier

    Fundraising

    • Plan for six-month lead time to raise capital, and anticipate the likelihood of smaller round size and lower valuation than previously anticipated
    • Will be more challenging to bring in new investors; reach out to current investors for additional investment
    • Explore potential to qualify for SBA loans and submit applications ASAP
    • Request principal deferment from existing lenders
    • Explore venture debt options

    Other Expenses

    • Much of spending will be eliminated during the shutdown period and is likely to be lower for the balance of the year
    • Consider canceling participation in events for the balance of the year
    • Landlords accommodating rent abatement/deferment requests
    • Review spending on SaaS software tools and negotiate a lower pricing tier for hosting services
    • Be careful about marketing spend • Explore stimulus tax deferment opportunities
    • File for R&D payroll tax credits

    COVID-19 Stimulus Resources

    We are regularly updating the Burkland COVID-19 Resource Center. Here are critical articles on federal and state programs to help your startup:

    Paycheck Protection Program

    Update 4-9-2020: Treasury Department Clarification for CARES Act

    Update 04-02-2020: Paycheck Protection Program Latest Developments

    17 Things to Know About the Paycheck Protection Program Loan

    Economic Injury Disaster Loan

    How Do I Get a Quick Infusion of Working Capital for My Startup During COVID-19?

    Local Program and Tax Benefits

    COVID-19 Related Tax Deadlines

    I Need Help Paying My Startup’s Loans During COVID-19

    Federal Cash Tax Benefits Available to Startups Impacted by COVID-19

    Read other articles in this 3-part series: The first article focuses on scenario planning. The second article focuses on the “how” – scenario planning, modeling, and waterfall analysis.