How startups can survive and thrive in a downturn

Eniac Ventures
19 min readJul 18, 2022

by Nihal Mehta and Anthony Ha

What should startup founders be doing right now to increase their odds of making it through a bear market, and maybe even recession?

That’s the question we posed to three veteran founders and investors who’ve guided companies through past downturns — Alan Patricof, co-founder of Greycroft and Primetime Partners; Jess Lee, co-founder and former CEO at Polyvore, and now a partner at Sequoia Capital; and Dennis Crowley, co-founder of Dodgeball and Foursquare and now working on StreetFC and LivingCities.

Our virtual roundtable was full of helpful stories and tips, and you can watch the full video (or read the full transcript) below. But we also thought it was worth pulling out some of the most actionable advice first.

Don’t hesitate to cut spending

Alan Patricof: These kinds of times give you an opportunity for a halo or shadow over your head to say, “Listen, we have to cut.” And it’s a good opportunity to cut — as GE used to do, remember, every year they cut the lowest 10%. I always thought that was a terrible policy, but that’s how they kept on upgrading, they got rid of the lowest 10%. If there are people you’ve been thinking about getting rid of, you can do it under the halo or the shadow of a tough economy and getting tighter for it.

Dennis Crowley: What are you spending on? And how quickly are you spending on things? I think when capital’s easy to get, you’re less mindful of it. Then it’s like, “Hey, we’ve got to make this stretch a little bit longer, maybe we shouldn’t do this onsite, maybe we don’t need to go to this conference,” you know, things here and there.

And also, just being mindful of, okay, we’ve got a team of X amount of people, we’re not going to double that, we’re going to make it go with a couple more people, but not double that. Just being realistic about the hiring expectations.

This is the best time to recruit

Jess Lee: I think we’ve been in this crazy talent war for so long, where you’re competing with FAANG, with crazy offers, everyone is recruiting everyone. And now suddenly, we’re entering this time where I think you’ll finally be able to get a high concentration of really great talent, and folks who are more missionaries than mercenaries.

Dennis Crowley: Before,you’d go talk to someone, like, “There’s no way I’m gonna leave my gig at Google.” And [now] they’re like, “Well, now there’s a hiring freeze, and I don’t know what’s gonna happen, and even if I was looking, I’m not gonna get six job offers, and you guys are pretty early and you have enough money. So yeah, this is a good path for me to take.” Just be able to have a different type of conversation with a different level of seriousness that we maybe weren’t able to have six months ago, eight months ago, with some of the same people.

Focus on your customers

Jess Lee: I also think you have pay very close attention to the mindset of your customers. If you’re a consumer company, all your customers suddenly feel poorer, we’re going through what looks like it might be a recession. And then on the enterprise side, budgets are getting cut, your friends are being laid off.

You don’t want to be a company that learns six months later that you were in the nice-to-have category all along. Do you need to shift your product positioning to be a little bit more about efficiency or cost savings?

Alan Patricof: I think this is a very good time to get out of your seat in your house, and go meet your customers, and actually do some visits in-person and get a sense of what is happening at the customer level. Rather than try to interpret over Zoom. It has a different dynamic. I know it’s a lot of a lot of extra work, but you can pull a lot of market information by visiting a customer.

And here’s the transcript, which we’ve edited for clarity.

Nihal Mehta: Good afternoon, everybody. This roundtable is called “How Startups Can Survive and Thrive in a Downturn.” It’s a very timely topic, and we’re really happy everybody could join us. Quick reminder, before I introduce our incredible panelists, you can submit your questions anytime via the Q&A button in the Zoom webinar.

And now without further ado, as I announce each panelist, you can magically appear on video. First, is Jess Lee, a partner at Sequoia and a great friend. She was formerly the CEO of Polyvore, [and worked] before that at Google, and she is amazing. Jess, wave to the world.

Dennis Crowley, also a dear friend, a legend in New York tech, co-founder and chairman of Foursquare, previous to that Dodgeball, which was also acquired by Google, I think you guys may have overlapped back in the day.

And last but not least, a legend among legends, a living legend: Alan Patricof, thank you for joining. Alan is founder of Apax and Greycroft. He’s got an incredible book out right now, called “No Red Lights,” we’re going to drop the Amazon link. It’s a mandatory purchase for everybody on this webinar, it’s an incredible read. By the way, I was just telling these guys, I’ve read more of it than my wife’s latest book, don’t tell her! Alan’s also walking, running the marathon this year, at age 88. He’s an incredible inspiration to us all.

Thank you, everybody, for joining us. Alan, I’m going to kick off with you. With more than half a century in venture capital, you’ve invested through more recessions than anyone here. How do you think this moment compares to past downturns? And how worried should we be?

Alan Patricof: Well, thanks to you Nihal, for being so gracious in your opening remarks. You know, I am living through this like everybody else. And my new firm Primetime Partners, which is focusing almost all in startups, we see the issues you’re talking about.

But you know, what’s concerned me for the last year or two is that almost everybody I deal with — and I don’t want to refer to people in this call — did not live through ‘99 to 2001. And they have a very positive attitude: Everything is going up. Every entrepreneur sees everything from the last couple of years going up. And most venture capitalists see everything going up — somehow, 2008 didn’t hit as much. So I think that there’s a still a moment of euphoria that people haven’t come to realize that there are cycles, and that we are probably in one now. And the question is what the depth is.

But how this compares so far? Mild compared to what could be, but clearly, it’s a moment in time to get hold and to prepare for it. Even if it hasn’t hit you yet.

In a way, it’s a positive — I hate to refer to the Supreme Court decision but they let loose, two months in advance, this terrible Roe versus Wade decision, let a little bit of air out of [it]. Maybe, you know, what we’ve seen the last two months is kind of decompressed a little bit and made people look more carefully than they had.

Nihal: Jess, Polyvore, when you took the helm, was kind of post-financial crisis. When you were running the company, what was going through your head at that time?

Jess Lee: Yeah, we started before 2008 and had a pretty good ride, found product-market fit, and we were growing, then 2008 hit. And I remember seeing the Sequoia RIP Good Times presentation and it had a lot of the prediction of the coming crash, what was going to happen. I remember a slide that said “death spiral,” and the founders who react quickly would survive, versus those who are too slow. I just remember the most compelling thing from it was: Move quickly.

We were really small at the time, so there wasn’t a lot to do. But I remember thinking, wow, this grave warning is pretty scary. We did manage to eke out a Series B at that time of like $5 million — now what might be a large seed. And I think what happened was, we got really, really good at growth, organic growth. So we figured out before the term growth hacking existed, how to grow on Pinterest, grow on Tumblr, grow on to SEO, and I think some of those practices and being forced to do that made us one of the consumer companies that stuck around for longer and was always able to thrive on our own community talking about us. And I think, hopefully, that’s something you’ll see now with less capital available, with [situations where] you need to eke out your survival, I think you’ll see hopefully stronger companies built.

Nihal: It made you more disciplined, probably, during that period. And Dennis, also you started Foursquare right around the same time.

Dennis Crowley: The thing is, I just left Google at the time, and I was kind of decompressing, trying to figure out what to do next. The hype of that previous cycle was ending, I was like, there’s no companies that I really want to go work for, let’s start something else and start from scratch.

What we experienced in the early days of Foursquare, the first one year, two years, 2009, 2010, is that there was a lot of people in that similar mindset, that were working at bigger companies and bigger jobs that were looking at what was happening in the market, in the economy, as a chance to reset their own careers and what they wanted to do next. And so it was easier for us to go and recruit talent and build a pretty amazing team in New York. I remember when we were starting Foursquare, everyone said, “Oh this is great, you guys started in New York, you’re gonna move out West.” It’s like, “No, no, no, we’re not gonna move out West, we live here. We’re gonna build this company here.” “Yeah, but you can’t build an engineering team in New York.” “Well, we’ll figure it out.”

Nihal: So it was probably helpful in your recruiting, right? When folks were on the market, there’s a lot of access to talent.

Dennis: I mean, if anyone had built a world class engineering organization in New York, it was Google. And, you know, I was just coming out of Google. The first couple of hires we had were all out of Google. The joke was always: It took us about a year or so, but we reproduced the lunch table that we used to sit at in the Google cafeteria in New York, we just did it at Foursquare World Headquarters down in Cooper Square, just poaching one person at a time, because they were just ready to leave. They had spent time at Google, and they were ready to move on to the next thing.

Nihal: It was interesting, an LP this morning said — I asked him how long this thing’s gonna last, and he said, “The longer the party, the longer the hangover.” And this party was, what, 12 years long, or more? Alan, you’ve seen a few of these iterations. How long should we be prepared for this? And what’s one piece of advice you have for younger founders who have never seen a bear market before?

Alan: Well, I think one of the bigger differences today is that most companies that I’ve seen have adequate cash, or more than they did in 2000 or 2008, perhaps. I can remember with horror, every single week, that one of the companies in the portfolio couldn’t make Friday’s payroll. I haven’t yet come across a company either recently or in the last couple years that was not been able to make a payroll. You can’t generalize, but I think for the most part, companies have more cash.

The other thing I would say is, these kinds of times give you an opportunity for a halo or shadow over your head to say, “Listen, we have to cut.” And it’s a good opportunity to cut — as GE used to do, remember, every year they cut the lowest 10%. I always thought that was a terrible policy, but that’s how they kept on upgrading, they got rid of the lowest 10%. If there are people you’ve been thinking about getting rid of, you can do it under the halo or the shadow of a tough economy and getting tighter for it.

The other thing is, as Dennis said, it’s easier to recruit in times like this, because there are going to be more people around. They’re not as arrogant in thinking they’re going to have five opportunities. They may accept your offer a little quicker and [on] a little more realistic basis.

And I’m not sure how much it applies to people on this [roundtable], but I always remember learning from it either from Procter & Gamble or Unilever, saying the time they increased share market was always in bad times. And I know it’s not the same as a startup, but this is a time when people will be making moves that may give opportunities for people to go in and capture a piece of business that they might not have been able to get under other circumstances.

Nihal: There’s a quote that somebody told me — I’m probably getting this wrong, but it’s easier to overtake other cars on the highway when it’s raining.

Alan: Okay, great. I like that much better than what I said. Much shorter.

Nihal: It’s also a lot more dangerous to overtake other cars on the highway when it’s raining, right? But Jess, at Sequoia like, what do you guys tell your companies? Obviously, everybody’s seen the 50-page memo from last month.

Jess: Yeah, we called an all-hands for the entire founder community about a month ago, and then went through three or four different topics: forecasting, fundraising, and then leadership in uncertain times. And I think it’s different than what Alan was saying. This is the time to overtake, but you just need to survive first. Folks are all in different places. There’s no one single piece of advice, but the first is probably survive.

And now is finally the best time to recruit. Honestly, that’s probably one of the biggest benefits. I think we’ve been in this crazy talent war for so long, where you’re competing with FAANG, with crazy offers, everyone is recruiting everyone. And now suddenly, we’re entering this time where I think you’ll finally be able to get a high concentration of really great talent, and folks who are more missionaries than mercenaries. So I do think that there’s gonna be a bit of a freeze for a while, it seems, but this is the moment to take advantage of the fact that if you do have the capital and you do have product-market fit, now’s a great time to find great people.

Nihal: Dennis, in that vein, right now, you’re back to creating, with a few different projects on your plate. Feels like it’s a great time to build — not to steal, you know, Mark Andreessen’s words, “it’s time to build,” but what are your thoughts in terms of building now? Versus like, a year ago, two years ago, when there was crazy access to capital, there were a lot of tourists on the investor and the founder side and now they’re gone?

Dennis: I feel like there’s certain times in the cycle where there’s just a lot of noise. I think there’s been a lot of noise in the crypto space, in the NFT space, and because there’s so much noise, it’s easy for people to look at those spaces, and think, “Oh, it’s just all just all nonsense, nothing great there.” But there really are interesting projects that are going on, just buried under a pile of things that maybe are less interesting. These periods, what they do is, they’re like the Great Reset, right? Some of those companies go away, some of them get acquired, some of them get acqui-hired, some of them go out of business. And the interesting ones survive.

I don’t know what the version of this quote is, but there’s always capital for good companies. Capital is scarce when you don’t really have something interesting, you don’t really have something that it’s working, you don’t really have something where people can see the product fit. But if you’re toying around interesting areas, then opportunities arise.

One thing that’s different is, back when we started Foursquare, there was something new at the time, right? The iPhone was brand new, that was a big technological change. And we were just kind of messing around with different mobile stuff before then.

There hasn’t been anything new in a while — watch, VR, AR, it’s there, but what’s going to be the next thing that kind of resets everything and gets people excited? Is it some mainstream application of crypto? Is it Apple’s magical glasses? Is it something else? So when we talk about when do you pin the end of this cycle, it might be just another generation of hardware, which then spawns another generation of experiences that need to get built.

Nihal: The mobile analogy of ‘08 could be the web3 analogy today, potentially.

There are a couple of questions on the investment side that came in. Alan, for Primetime or Greycroft, how do you decide, in this environment, which portfolio companies to keep funding?

Alan: You know, I think two of the biggest problems in the venture business, probably in every industry, one is how to say no to someone and do it gracefully. And the second is deciding which companies you want to keep supporting.

I try to follow a — I don’t want to say rule, because I certainly violate it all the time. But I think about a company that I’ve invested in a first round and say to myself: Do I still think the management is as good as I did when I made the investment? Do I still think the market opportunity is as big as I thought it was? Do I think the product development has come along as much as I had anticipated and how far are we behind? [Do] the economics work as well as I thought? Now it’s very simple if all four of those — if I don’t like the management, the product development is slow, and the market etc., that’s an easy decision. The problem arises when you have one that still is valid, or maybe even two.

I’m not making a rule, but I’m just saying it’s a guideline, because I think one of the big problems is rounds. A-B-C-D-E-F-G. I mean, they go on and on. And I know that there are cases when round H is has worked, but if I can tell you a very, very quick joke. There’s a book called “The Green Hills of Africa,” written by Ernest Hemingway, and they’re sitting around the fire one night, and the white hunters are out shooting lions, and one turns to the other and says, “Do you think they got one?” And he says, “One shot? Meat. Two shots? Maybe. Three shots? Heap shit.” Which, in effect, was implying that if you got to shoot three times, you got to lie and you probably missed it.

If you have one round, and that’s all you have to invest, you can be sure that company is going to be some form of winner. And I’m not saying you need [to have rules about] two or three, but it does help if you discipline yourself.

Jess: Maybe the only thing I’d add is, I think the most precious resource is time. And in particular, the founder’s time. It’s so hard, it’s blood, sweat, and tears going into your company, right? I think sometimes you have to have the honest conversation of like, “Where’s this company going? If you’ve put four years in, where are we going to be in four years?” And you know, usually that conversation is not that much of a surprise and you just really need to figure out where are you going and do you [the founder] want to keep going? To me, that’s usually the ultimate driver.

Nihal: Jess, has your bar gone up in this environment?

Jess: I don’t think the bar has changed. I think prices have come down, basically. But the bar I think is still the same. We’re still looking for outlier founders, enormous markets or potential markets, and a lot of hustle and velocity from founders. It’s just, now there aren’t 20 term sheets or, you know, $100 million valuation on a pre-product, pre-revenue, pre-launch company. It’s really just the prices have adjusted because the capital has dried up.

We’re still definitely open for business. We did an investment, pre-seed, two weeks ago, and we actually just announced our the launch of Sequoia Arc in the U.S., that’s sort of our take on a on an accelerator for Sequoia. But that opened yesterday, actually. [Note: This roundtable took place on June 29.]

Nihal: I heard an analogy, it’s kind of been a moving target, but the $20 million A, which is standard dilution of 20%, $100 [million post-money valuation], is now a $13 million A, so the $100 million post has gotten compressed to $60–$65 [million] posts. Let’s see where it ends up. But to your point, prices are coming down.

Alan: One of the things that happens is — and I don’t want to say it’s definitely happening now — but entrepreneurs tend to have, obviously, a very positive outlook. And they look around and they see what [valuation] people raised money at last year. And my experience has always been in a bad time, they are [still] kind of hung up on a previous plateau. It takes a while ‘till they emotionally accept the fact that, you know, if they started out to raise at $100 million, then as you said, it’s [now] a $60 million valuation. It’s not an easy adjustment, and they need time to absorb that and live with it.

When the IPO, the stock market, declines, you don’t automatically see private deals adjust to it overnight, it takes a while. And I think we’re going through that period of adjustment right now, getting used to the fact that the whole level set may be lower.

Nihal: Dennis, founding businesses now, how are you adjusting to the new levels?

Dennis: Both the projects I’m working on, Street FC and Living Cities, we’ve successfully raised capital, so we’ve got enough to keep us going. There is a conversation about, “Hey, should we consider raising more just to get us through the next two years and give yourself 18 months runway?” But you really want to give yourself 24 [months] or a little bit more.

I feel pretty fortunate that we were able to button both of those up. But it was happening during the time when things were winding down a little bit. And it goes back to the point that, you know, we’re a pretty good team. And we’ve got a pretty good story.

I think the thing that’s totally different, and I think both Jess and Alan were hinting at it is, the talent market is just totally different, right? Before you’d go talk to someone, like, “There’s no way I’m gonna leave my gig at Google.” And [now] they’re like, “Well, now there’s a hiring freeze, and I don’t know what’s gonna happen, and even if I was looking, I’m not gonna get six job offers, and you guys are pretty early and you have enough money. So yeah, this is a good path for me to take.” Just be able to have a different type of conversation with a different level of seriousness that we maybe weren’t able to have six months ago, eight months ago, with some of the same people.

Nihal: And even in the unicorns, the decacorns, there are a lot of folks that have their options underwater now, right? Especially with what’s happened last year, with these insane financings. So I think that talent feels like they’re ready to go.

Dennis: Also, a lot of people were pretty crypto rich six months ago that aren’t so much now. Like, “Oh, maybe I should go get a different gig. Maybe this maybe this isn’t the nest egg I needed it to be.”

Nihal: You know, you mentioned 18–24 months runway. At Eniac, we’re trying to have our portfolio [companies have a] minimum 24 months, if possible. That means going back to even reopening the last round, and adding cash to it.

What are the things should founders be mindful of in this in this time, besides, besides runway?

Dennis: Spend — what are you spending on? And how quickly are you spending on things? I think when capital’s easy to get, you’re less mindful of it. Then it’s like, “Hey, we’ve got to make this stretch a little bit longer, maybe we shouldn’t do this onsite, maybe we don’t need to go to this conference,” you know, things here and there.

And also, just being mindful of, okay, we’ve got a team of X amount of people, we’re not going to double that, we’re going to make it go with a couple more people, but not double that. Just being realistic about the hiring expectations.

Alan: Times like this, you get more efficiency out of the employees you’ve got, that’s for sure.

And it’s also in times like this, if you’re selling a software, product, or service, that is not necessary — I mean, I hate to say it, because I believe in it, but if you’re in the PR business, or marketing services, it’s so easy to cut that. And it’s so easy to cut your ad spend, even though it may hurt you, you reach for those kinds of things, and it’s more short-range than long-range thinking.

Jess: I also think you have pay very close attention to the mindset of your customers. If you’re a consumer company, all your customers suddenly feel poorer, we’re going through what looks like it might be a recession. And then on the enterprise side, budgets are getting cut, your friends are being laid off.

You don’t want to be a company that learns six months later that you were in the nice-to-have category all along. Do you need to shift your product positioning to be a little bit more about efficiency or cost savings?

It’s gonna hit consumer more quickly, it’ll show up right away, but I think in enterprise, it’s going to take a while to trickle down.

Nihal: A lot of the B2B SaaS revenue forecasts now are seemingly being affected because they’re selling to other SaaS companies that are also cutting spend. So it’s kinda like, okay, maybe time to re-forecast.

Alan: I’ll give you a suggestion, but not the everyday suggestion: I think this is a very good time to get out of your seat in your house, and go meet your customers, and actually do some visits in-person and get a sense of what is happening at the customer level. Rather than try to interpret over Zoom. It has a different dynamic. I know it’s a lot of a lot of extra work, but you can pull a lot of market information by visiting a customer.

Nihal: I love that. That doubleclicks on what Jess just said about really getting to know your customers. You know, kind of reinvent that relationship as times are changing.

Well, guys, we are at time. This has been a really action packed and very informative panel. Again, really appreciate all of your experience. Like I said, I think I posted in the chat, I was very nervous getting up here because you guys are legends and friends, and really appreciate your time in the middle of the week in the middle of a bear market. And I’m hopeful that a lot of these nuggets, folks will take away with them and inspire them to build better companies during this time.

You can reach out to any of these incredible folks, Dennis, Alan, and Jess on Twitter. They’re all active and that’s probably the best way to get in touch. You can reach us at Twitter as well. [P.S., if you think you’ve got a startups that will survive and thrive, pitch us!]

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Eniac Ventures

We lead seed rounds in bold founders who use code to create transformational companies.