April 2020

What a difference a few weeks have made since our last newsletter in early March. The whole world has changed. All our lives have changed. And for many Hudson Valley entrepreneurs, your businesses may be at risk. 

Our April newsletter is focused on helping us to bridge the gap between today and better times ahead. There are significant resources and insights for entrepreneurs and investors in the newsletter sections below. 

And during these trying times, let’s all pray for everyone in our entrepreneurial community and for our families.

Entrepreneurs

Let’s help each other to succeed through this crisis. The HV Entrepreneurs Forum, originally scheduled for March 19, and postponed to June 5, has now been changed to a series of weekly online Collaboration Huddles where HV entrepreneurs can huddle up to help each other succeed. All types of entrepreneurs are encouraged to join: high growth startups, small business owners, family business owners, and solopreneurs.

They will be held via Webex beginning Thursday, April 9 from Noon - 1pm, and the same time every Thursday  through May. Each huddle will have collaboration around a specific topic and an open collaboration where all the participants can ask questions or share best practices or other helpful info. 

No need to register. You can Join Webinar Here with meeting number 612 333 207 password = hvventurehub, call in # +1-415-655-0001 US Toll

Tentative Schedule of Collaboration Huddles (we will adjust as things are changing rapidly)

In the midst of this crisis, perspective is critical. Balance a short term crisis management perspective with a long term perspective. Short term, do what’s needed to help you, your families, and your employees to get through the health crisis, while at the same time doing everything in your power to help your business survive.  But also take a long term perspective - look beyond the short term crisis by making decisions that will pay off in the long term such as putting “people first” which can cement employee loyalty for years to come.  

We’ve pulled together a set of highly recommended resources and insights for short term crisis management and long term perspective. See below.

Short Term Crisis Management

Now back to short term crisis management. 

Watch the 11 minute video “Eight Steps Startups Should Take to Survive the Corona Crisis” (Source: Drive Capital). Eight Steps listed below.

  1. Over communicate
  2. Set your teams up to be successful
  3. Stress test your company
  4. Pull down all debt capital now
  5. “Run to the roar”
  6. Share the bad news
  7. Pause all hiring
  8. Do not hesitate

Great set of resources pulled together by Scott Tillitt, Founder of BEAHIVE, and also a HV Venture Hub Leader. Thank you Scott!

Other Valuable Links

Additional insights

  • Employees
    • A “people first” and “family first” philosophy will pay dividends when things turn around. Do whatever you can to help them through this crisis. For example, consider cutting hours but maintaining their benefits. 
    • Before offering a deferred pay arrangement, contact your lawyer and CPA, since there are legal and financial implications you want to avoid. 
  • Expenses 
    • Review every expense closely. 
    • Cut variable costs to the bare minimum. 
    • For fixed costs, identify those where your lenders may have some flexibility. Contact them sooner than later with your suggested plan for catching up. 
      • Keep on top of latest changes in tax reporting and payments. New dates for tax returns and payments are July 15 for Federal and NYS.
      • Do not miss tax deadlines and payroll tax deadlines as penalties can be severe! 
  • Revenue
    • Keep your lines of communications open with your customers. Let them know if you are still open and how they can continue to do business with you.
    • Pivot to focusing on products and services in your portfolio that have greater potential for traction in the near term. Considering redesigning a current offering or creating a new offering that is a better fit for current customer needs. 
    • Be innovative with terms and conditions - consider offering discounts, deferred pay agreements. An option for raising $ through revenue is called “customer based financing”. Consider offering your customers a discount if they will buy now, or even better, offer them some value add instead of a discount.
    • Reach out to your Board of Directors if you have one, or your informal strategic advisors before making any significant decisions. These external perspectives can be critical, especially when your thinking might be clouded by emotion.
  • Cash Flow 
    • Leverage new government programs - federal, state, and local. See below for two examples.
    • If you are experiencing a short term cash flow deficit that is expected to be resolved once we are through the worst of this, consider the following two loans:
      • Disaster Assistance Loan, in particular, the Economic Injury Disaster Loan.  This is a low interest loan (3.75%, 2.75% for non-profits), with loans up to $2M with term up to 30 years. Loans can be processed in a matter of weeks. This is an SBA loan and requires collateral. Please contact the local SBDC office for assistance. See HV Venture Hub Leader web page for more info. 
      • Community Capital NY Emergency Express Loan, for up to a $10,000 bridge loan for up to 27 months, interest rate = 2%. See HV Venture Hub Services Provider web page for more information.
    • If you have patents, you can explore a loan against your patents. 
    • If at all possible, avoid using credit cards to satisfy your cash flow gaps.
    • Make sure to engage your CPA and lawyer before pursuing any significant loans.
  • Investors
    • Stay in contact with your current or potential investors. Help them understand how you are adjusting to get through this crisis. Share updated financials and new strategies for driving revenue. 
    • Expect different terms from even a few weeks ago on both valuations and other terms you might not have accepted a few months ago. Understand this is not because your investors feel they can squeeze you, but more a reflection of the market conditions where there is less capital being deployed and more competition for those funds.
    • On the plus side, it is counterintuitive but now is still a good time to raise money. Angel investors know this is a long term investment and with better terms come better long term returns for investors so they may be more willing to invest than you think. Historically, investors who invested during the 2008-2010 financial crisis had much better returns than investments made before that crisis.
    • It always helps to understand what investors are thinking. Check out the Investor Section of this newsletter for new investor thinking.

Investors 

Though what we are experiencing today is different from past disruptions in many ways, there are parallels to be drawn, at least in economic terms. In the aftermath of the 2008 Great Recession, the Orange County Angels and Dutchess County Angels ceased operations and funding. This was a major blow to the nascent HV startup ecosystem at the time. To fill that gap, the HV Startup Fund was launched in 2016 and has invested over $1,750,000 in nine different HV startups. While the prior organizations were angel networks with each investor making his or her own investment decisions, the HV Startup Fund is a fund model. 

HV Startup Fund will continue to invest significant capital in HV startups. The funds are in the bank and ready to be deployed. The Fund is moving ahead with new investments soon and open to being approached by other HV startups.

Still, conditions have changed significantly. Insights for investors from a Pitchbook Webinar on March 25, 2020 are outlined below. Pitchbook has significant historical venture data going back before the 2008 downturn, so they have good data-based insights.

  • There is no direct historical correlation between the public markets (e.g., S&P) and private markets (e.g., angel investments). In 2008, there was a 5% decrease in deal activity and 25% decline in deal value. Angel investments are less volatile than the S&P and outperform when the S&P declines. 
  • There is however a historical correlation between angel returns and the US Gross Domestic Product. With the massive economic shutdown and already seeing 3M layoffs in March, the short term US GDP is projected to go down as much as 20% (2Q20) but the longer term GDP decline forecast is more like 2% annually during the expected recession (3Q20-?). If in line with the historical correlation, we would expect startup valuations to decline 20% short term but declines thereafter would be less severe, through the remainder of the recession. 
  • In 2009, there was an increase in early seed round funding with investors looking for high return on long term investment opportunities. Deal (round) sizes were lower. 
  • Acquisitions will decline significantly in the near term. Therefore, expect to hold on to current portfolio companies longer than expected to exit in better times. This will likely lead to a lower IRR since the time to exit is longer. This is proven out historically as illustrated in the bullet below.
  • Investor returns on investments made before entering a recession (e.g., 2004-2007) were lower than investments made during the recession and declining S&P (e.g.,  2008-2010) which have had the best historical performance. Assuming the same holds true, investments made in 2020-2022 should outperform investments made in 2017-2019. 
  • The bullet above is a strong signal for investors to invest and deploy capital now. Angel investors already have a long term investment perspective, so it is easier to look past the next few years to a longer 8-10 year investment horizon. Venture investments are a long term asset class that can weather the near term storm. So don’t assume angel investors run for the hills. Some angel investors might become inactive if their net worth or income have declined and pushed them below the limits for being considered an accredited investor.
  • One thing is clear, the negotiating power has shifted from founders (sellers market) to investors (buyers market), who will be better able to influence deal terms. The terms include valuation and other terms such as liquidation preferences. For example, these preferences have only been in 14% of the term sheets recently, but are expected to be in up to 50% of the terms sheets in upcoming deals.
  • It is reasonable to put deals on hold during the midst of this crisis to wait and see what happens. But be prepared to begin to actively deploy funds once most of the uncertainty has passed.
  • Consider investing in sectors better aligned with the current situation and expected recession such as: health technology (e.g., telemedicine), disaster recovery infrastructure, remote work solutions, delivery solutions, ecommerce, supply chains. And shifting away from sectors highly impacted: travel, hospitality, discretionary spending, banks, real estate.
  • Funds with a strong track record will outperform new, 1st time funds.
  • Early seed round angel deals see more activity in downtimes versus later stage deals that need larger rounds.
  • Early stage startups can more easily get to $0 cost (or lean) versus later stage startups with a higher burn rate.
  • In summary, this is a great opportunity for HV Startup Fund and other NY Metro Area angel groups to invest in well positioned and strong startups at lower valuation, with better anticipation of long term returns. Expect newer and better ways to invest in down rounds.

A few other insights from a recent American Capital Association webinar:

  • Help your portfolio companies to get out of crisis mindset and into an innovation mindset.
  • Be a sounding board to help your founders see the current situation more clearly and objectively especially in these key areas: current customers / revenue, sales pipeline, supply channel / partner channel, cash on hand, and team.
  • It is important to build trust with your founder teams. Be careful not to negotiate onerous terms, but instead find the terms that are fair given the more competitive environment for funds that will likely create more flexibility on the part of founders.
  • Prioritize your constrained resources of time, energy and money over the next six months. 
    • Where there is little to no hope of a portfolio company surviving, steer them to other resources (e.g., disaster recovery loans), advise them on orderly shutdown strategies, and avoid “red zone” risks if you have a board seat. 
    • Where there is some or plenty of hope of surviving six months, help them to clarify KPIs and milestones, help them refine strategies, and assist in framing their communications to investors, employees, and customers (e.g., right tone, content, timing).

Please also check out the recently updated Upstate Capital Investors Resource which includes valuable links to resources for investors.

If you are an angel investor or would like to become an angel investor and would like to talk to someone at HV Startup Fund, please contact us at info@hvstartupfund and one of the Fund managers will get back to you.  

Leaders

                   

The SBDC works closely with other New York State economic development agencies, faculty and students at host institutions, representatives from private industry and business to focus resources on assisting small businesses and entrepreneurs. During the COVID-19 Pandemic the SBDC is assisting Small Business entrepreneurs navigate through programs available and the SBA Loan process for economic injury as a result of the Coronavirus and economic shutdown. Mid-Hudson SBDC has an office at the SUNY New Paltz Campus – Cathy Terrizzi, business advisor is here to assist you with your small business needs (845)257-2310.

The New York State Small Business Development Center (NYSBDC) - provides expert management and technical assistance to start-up and existing businesses across the state. The NYSBDC is administered by State University of New York and funded by the U.S. Small Business Administration, the State of New York, and host campuses.

NYSBDC provides small business owners and entrepreneurs in New York with the highest quality, confidential business counseling, training, and business research at no cost. The SBDC emphasizes counseling and training services to women, veterans, people with special needs, and minority clients. Also focuses on projects that advance the job development, investment, and economic growth priorities of New York State, with an emphasis on manufacturers, exporters and technology-oriented firms.

The SBA is offering low-interest federal disaster loans for working capital to (a) small businesses or (b) private nonprofit organizations that are suffering substantial economic injury as a result of the Coronavirus. If you are a New York State-based business and if your business is experiencing a business loss due to COVID-19 – The SBDC can help guide you through the Small Business Administration Coronavirus Economic Injury Disaster Loan process. Entities may qualify for loans up to $2 million- Interest rates: 3.75% for small business; 2.75%. More details are available at: SBA Coronavirus Economic Injury Disaster Loan

Small Business Resources

For more information, contact Cathy LoCicero-Terrizzi, Mid-Hudson Small Business Development Center, satellite office located at SUNY New Paltz, School of Business, van den Berg Hall, locicerc@sunyulster.edu, (845)257-2310.

Service Providers

During this time of great challenge, Community Capital New York is here to support you. We are currently working hard to understand emerging SBA and federal funding opportunities and to connect small business owners to free resources across Westchester and the Hudson Valley. As the only nonprofit, community-based lender exclusively serving Westchester and the Hudson Valley, we drive capital and resources to start-ups and small business owners typically excluded from current systems. 

 

See Community Capital NY Website for latest info. 

Before Silicon Valley, The HV

By Donald J. Delaney

Madam C. J. Walker, the First American Female Millionaire Entrepreneur

Self-Made – a Step at a Time

Photo: Smithsonian Institution/Wikimedia Commons; LwcyD/Pixabay

In the 1850’s, French economists were searching for a word to describe craftsmen who were ‘raising' their craft into a business. They coined the term ‘entrepreneur’. These learned thinkers could never have imagined the dynamism, nor success of Madam C. J. Walker (1867 - 1919). “I got my start by giving myself a start.”

Madam C. J. Walker, born Sara Breedlove (1867) started her journey to entrepreneurship in ‘cotton country’. Sara was born in a shack, the daughter of Owen and Minerva Breedlove, enslaved people recently “freed.”. An orphan at seven, Sara picked cotton, and was a washerwoman, house maid and cook. She received only three months of education. 

Sara’s call to entrepreneurship involved an urgent personal problem. At age 23, her hair started falling out due to a scalp disorder. This was a common condition among black women in the 1900’s, mostly due to using lye soap. It was also the era of questionable home remedies and cures. Her personal health and appearance set her on a mission - grow her hair.

Many of her self-experiments with home remedies yielded encouraging results. To this Sara added suggestions from her three brothers who were barbers. She created a prototype product and a self-testimonial. The next step was self-employment. Sara sought out a start-up mentor to help her acquire business skills. In 1905, she signed-up as a commission agent with Annie Turnbo Malone, a successful, black, hair-care product entrepreneur in Denver.

In January 1906, Sara launched her most audacious self- Madam C. J. Walker – Entrepreneur (solopreneur). Her new mission focused on empowering black women to instill confidence, create financial independence and build community.

The photo below is Madam C.J. Walker’s mansion, called Villa Lewaro, located in Irvington, NY (Westchester County). As described in a recent article in DiversityInc Magazine, “Walker’s 28,000 square foot property was designed and completed 100 years ago by Vertner Tandy, the first licensed Black architect in New York State... She was the first person of color to own property in Irvington. During the time it was built, Villa Lewaro was located on “Millionaire’s Row” and in an area that was also home to the Astors and Rockefellers.”

Villa Lewaro was designed to become a place for community leaders to gather and to help other African-Americans by inspiring them to pursue their dreams. New Voices Foundation purchased Walker’s mansion in 2018 which will be the nonprofit wing of the $100 million New Voices Fund, which focuses on women of color entrepreneurs.

Like ascending the marble steps of her future Hudson Valley mansion, Madam C. J. raised a multi-million-dollar haircare branded business, a step at a time. Entrepreneur, Philanthropist and Equality Activist.

This Before the Silicon Valley, the Hudson Valley blog offers a 400-year narrative journey honoring the Icons of entrepreneurship and their impact on invention, innovation, and commercialization in the Hudson Valley.

Contact welcome: Donald J. Delaney, HV Entrepreneurship Historian & Blog Writer for the HV Venture Hub at SUNY New Paltz. You can reach Don at don@dondelaney.com

© Donald J. Delaney 2019

Events / Jobs 

April 9 (Webex): Collaboration Huddle for HV Entrepreneurs, Topic: Surviving...then Thriving with Rachel Hawkes, Co-Founder, ViaHero, Daniel Leader, Founder and Chairman, Bread Alone, Dennis and Julie Roche, co-founders of Burbio, Jeff Werner, Founder and CEO, The Field Group, Richard Zack, Founder and CEO, our.news

April 13 (Zoom): Hudson Valley Womxn in Business meeting on Building a Values-Aligned Business, 6:00pm – 8:00pm

April 16 (Webex): Collaboration Huddle for HV Entrepreneurs, Topic: Funding - Pre-Seed and Seed with Johnny LeHane, Founding Manager, HV Startup Fund

April 20 (Webinar): POS- The Fast Track to Growth, 6:00 pm – 8:00 pm, The Accelerator

April 23 (Webex): Collaboration Huddle for HV Entrepreneurs, Topic: Funding - Series A and Beyond with Leon Greene, Manager, HV Startup Fund

April 30 (Webex): Collaboration Huddle for HV Entrepreneurs, Topic: Strategic Partnerships with Tony Fareed, Managing Director, Bridge Global Capital Group, 360accel

April 30 (online): Venture NY, hosted by Upstate Capital

May 1 - May 24 (online): NYS Business Plan Competition .hosted by Upstate Capital.  Get details at VentureNY.org

May 5 (Webinar): Marketing Tools for Selling to the Government, 12:00 pm – 1:30 pm

May 7 (Webex): Collaboration Huddle for HV Entrepreneurs, Topic: Crossing the Chasm(s) to Growth with Rushdi Siddiqui, Co-Founder & CEO of Vaistra

May 11 (Zoom): Hudson Valley Womxn in Business meeting on Expanding in the Midst of Challenge, 6:00pm – 8:00pm

May 14 (Webex): Collaboration Huddle for HV Entrepreneurs, Topic: Solopreneurs with  Lauree Ostrofsky, Founder, Simply Leap

May 21 (Webex): Collaboration Huddle for HV Entrepreneurs, Topic: Small Business with Frank DeRaffele, Executive Director, Business Networking International HV

May 28 (Webex): Collaboration Huddle for HV Entrepreneurs, Topic: Finding HV Talent with Kale Kaposhilin, Co-founder, Moonfarmer

Job Opportunities

Commercialization Fellow, Empire State Development (ESD), Albany, NY

Comments? Email Tony DiMarco at dimarcoa@newpaltz.edu