Survival kit for Start-ups: How to survive during this COVID-19 crisis?
Apr 06

It is no surprise saying that this COVID-19 pandemic is a novel situation for most start-up founders. As Sequoia states in their Black Swan memo “with all crises, businesses experience a bigger or smaller negative impact, however, those who are not giving up and are ready to stand in the frontline may be the ones benefiting from this situation.” In other words it is not the strongest or the most intelligent who will survive but those who can best manage change.

As it’s already the third week of the quarantine, and the panic rate has lowered down, it’s time to think of how and what adjustments shall be made in these circumstances. Hopefully, insights and possible financing solutions will lead you up during these days.

Do not be afraid to use state aid

For most of the founders’ state aid funding option was well-known even before the quarantine. However, due to active investors and complex funding procedures, this not so trendy opportunity was left only as a plan B or even C. 

However, with economic activity slowing down and investors being more aware where they invest opportunities State Aid seems to be quite an attractive option. At this moment State Aid may be separated into two different sections: funding and compensations.

With the first section – funding founders if the application submitted before September 30, may seek investment from EUR 10,000 to EUR 52,000. Main programs to be noted are: 

Inočekiai and Inostartas, maximum investment for both are EUR 33,998 and EUR 52 173 per applicant respectively. Programs are aimed at innovative companies that seek to conduct R&D activities that promote business autonomy and the relationship between business and science. The best thing – there are no limitations related to business areas of the applicant, thus even though an idea to create antibacterial soap may be approved as legit.

The second section – compensation. More relevant to already established and working start-up companies. The first one compensation of interests for loans to working capital. Compensated part may vary from 50 to 100 percent of interests paid within the last 60 months. The second option are guarantees for existing non-guaranteed investment, working capital loans, leasing or loans borrowed to ensure liquidity. Guarantee size may vary from 60 to 80 percent. 

As you may see these options are quite attractive, however as other SME’s may also apply for such state aid, you need to act quickly and ensure that your application will be among the first ones.

Keep up the team

We would not be original saying that team is the most essential part of the start-up business, thus keeping together these days is essential, as keeping all employees you have hired on the same page. As the number of unemployed persons is growing employees of the start-ups (especially early-stage) may feel uncertainty about their future jobs and financial position. 

Unless you have one of the very rare start-ups, that is growing profitably and/or have solutions which may even experience increased demand in these times you should rethink on one of the following state subsidies: 

  • 70 percent of the employee’s salary, but no more than 1,5 of the minimum salary (EUR 910,5 gross).
  • 90 percent of the employee’s salary, but not more than EUR 607 gross.

In case subsidy was used the employer will be obliged to preserve no less than 50 % of the employees at the workplace for at least 3 months from the end of the payment of wage subsidies. However due to decisions due to decisions that have been postponed by the Parliament, more information on subsidies could be updated on 7 of April.

Be noted, that the most important prerequisite is that the load of the business should be decreased significantly, your employees cannot work remotely and do not want to work another job, when the only option is downtime.

Privacy shall not be forgotten

Since 25 May 2018 privacy all IT companies remember as the day when customer’s privacy protection became an essential part of all IT, medicine companies. This COVID-19 crisis will be remarked as well since most of the offline start-ups became visible online.

From cafeterias to fishing stores, everyone is on the internet. As there are no limitations now, the next thing is to prepare your terms and conditions and privacy policies. There is no secret that most of the start-ups copycat their T&C’s and privacy policies from other well-known companies and forgot that some of their idols work in other jurisdictions, meaning that such policies are tawdry.

The lesson to be learned here – keeping it simple is not the key, making it perfect is what lets you stand out from the others. Thus, tailoring your policies not only lets you look reliable to your clients, but also allow you to avoid any problems with Data Protection or Consumer Rights Authorities.

Be aware of your IP and confidential information

There is no secret that IP protection is very important to the start-ups (especially IT and tech-based ones). However, during this period when everyone works remotely, uses VPN’s, you cannot be sure of what your employees are doing, IP and protection of confidential information might be the thing you have to rethink.

Market and legal practices show that mix between legal and management matters is a key to success. So, these are the main tips for you to safe your confidentiality:

  • Be sure that all the employment agreements have terms on the protection and transfer of IP rights created during the work (including remote work) to the employer; 
  • Be sure that sales team (at least) have confidentiality agreements that would limit their possibility to develop the business on the same area as you are (just think it’s the best time to start something new).
  • Think about possibility to conclude non-compete agreements (it would cost you more, but yet again, nothing is as expensive as losing your business to competitors that were your own partners);
  • Determine the rules of a home office (e.g. working shall be allowed only using business computers, and no third-party software could not be installed without your permission);
  • Ensure that your team is familiar with phishing and scamming (if not organize online courses); 
  • Do not let you to be seduced with freeware or questionable software that might have malware installed. 

If several of those tips you can check, then the probability to suffer any losses will be lessened. 

Realism is a new black

As a market shows, investors are full of money to be invested, however, the approach has been changed and provision a realistic basis for the growth of the business became the essential part.

Hence to start with, you should make a realistic assessment whether the previous assumptions on revenue growth are still viable (most probably not).

Then look at ways to adjust costs – often first by postponing growth-related investments and operating costs, however depending on the gravity of the impact also wider cost-saving actions may be necessary.

Companies will face tough times but most importantly the management teams should demonstrate strong leadership, maintain employee morale and strategic clarity, bearing in mind that often the best companies are created during economic crises.

If all the steps will be completed the appropriate funding proposal could happen.

The article is written by Andrius Urniežius, Associate at TGS Baltic