Four tech leaders’ guide for surviving the financial turbulence.
“The bubble has busted”, “A bloodbath”, “The biggest downturn in two decades”, “Massive layouts” –are just a few of the headlines being repeated in the press in recent weeks. You don’t need to be a tech or finance expert to notice the changing climate in the global economy and tech ecosystem. Israel has enjoyed a record year of technology companies going public, but reports are indicating the party is over. The question is no longer will we see recession but how bad is it going to be.
Israeli and Israeli-based companies such as Playtika, Trax, Elementor, OpenWeb and others have made it public that they plan to lay off dozens of employees, with many more expected to follow suit and halt new hires in response to the expected global market slowdown. Despite the pessimistic forecasts, there are ways to weather the storm, regardless of how destructive you believe it may be.
Geektime asked four tech leaders for their analysis and advice on ways to survive, and perhaps even thrive, in this new era for the Startup Nation.
Gur Shaz, President, and co-founder at Cato Networks
“It is important to look at what is happening in the cyber industry first. Both investors and founders need to focus on operational efficiency, but also on retaining employee talent, and innovation. When the dust settles, it will be the most innovative companies that are left standing. Hackers are not going to switch to using pens and paper just because there is a decrease in the valuation of tech companies, private or public. On the contrary, there is an increase in sophistication and frequency of cyber-attacks as technology advances, making cyber-readiness non-optional.”
Oded Kadosh, Partner and Chair of the Corporate & Licensing Group at Pearl Cohen
“In the past 3-4 months, we have been seeing a drop in venture capital funding, mainly for late-stage companies. Funding of seed and early-stage companies seems to be more stable and while slightly tighter, we don’t foresee a significant deal slowdown or change in customary terms. We are seeing fewer large-size investments (over $100 million) at high valuations as we have seen over the past year, which is expected to continue into the second half of 2022. As typically advised during these downturn periods, in the coming months, companies should extend their runways and prepare for time with less abundance of cash injections. This is done by cutbacks on various budget items, from HR to marketing costs. Companies, mostly late stage, which have grown their headcount dramatically in past years, are likely to halt recruiting and release employees back to the market. We expect to see an increase in mergers and acquisitions, especially in the lower middle market –which has been increasing steadily in recent years– which will enhance growth and efficiency in this market.”
Dr. Tal Tirosh, Partner at Amit, Pollak, Matalon & Co
“Personally, I do not share the gloomy ‘winter is coming’ sentiment. While this time around, factors such as the continuous war in Ukraine, a decade-long low-interest rates being adjusted, and the slow pandemic recovery, have been causing macro-economic ripples, the high-tech industry has endured similar challenging moments over the past decade and emerged stronger and more vibrant. It is just going to be a ‘colder than usual autumn’. To survive and maybe even prosper in this environment, companies will need to be resourceful and think creatively about every aspect of their business. Here are a few tips. Firstly, to ensure that you do not run out of cash, cut non-essential activities, and renegotiate contracts’ terms. That can be seen as asking for reductions and better payment terms from suppliers and offering discounts to accelerate payment from customers. Secondly, while most VCs have more cash than ever, they are likely to scale back their investments to see how the economic climate develops and focus on their portfolios. This means investors will be seeking better terms across fewer deals. With that in mind, you should accept that valuations will come down. So, to avoid down-rounds, look to raise funds through SAFEs, convertible loans, or other debt financing vehicles. Lastly, if you need to downsize, try to do it with one deep cut– it will have a less demoralizing effect on the team. Moreover, think creatively about compensation, for example, increase commissions on sales and award options instead of cash bonuses. Remember that these are stressful times for your team, so you need to show leadership and keep your team engaged and feeling safe and valued. On the bright side, for companies with cash, this could be a good time to consider small acquisitions to strengthen talent and accelerate product development.”
Udi Ziv, CEO of Earnix
“This crisis is real, in the sense that it’s driven by real-world dynamics like war and supply chain shortages–not by perceptions or bubbles. Unfortunately, it doesn’t currently look like this will be a quick and easy crisis to overcome. This also comes at a time when investors have already been changing sentiment from focusing on hyper-growth to getting ‘back to the fundamentals of business model profitability. Interestingly, this is what investors should be doing at times like these: bet their dollars on very stable operations with solid, proven, and profitable business models. And this is also what I would recommend to entrepreneurs: focus early-on on creating a viable, solid business model, powered by real value for customers – and be very responsible with expenses.”