Ultimately, the Corona crisis caught us entirely unprepared.
The few indications that did exist, such as the now famous speech by Bill Gates or numerous Hollywood films on pandemics, were not taken seriously. Even when the entrance doors of apartment blocks in Wuhan were sealed, people here smiled mildly at the dictatorial Chinese system.
Even when the first supermarkets in Italy were empty in mid-February and the first intensive care units were overcrowded, people said "It's only the flu" during the humid carneval – im my opinion the most stupid sentence of the young decade.
Many data on the pandemic is still unclear, however the reaction of many governments is certain: Shutdown, leading to a simultaneous shock both in supply and demand.
A lot of companies are at a standstill, and many people in Germany can no longer work or only work to a limited extent. The quota of short-time workers has risen to 30% of the workforce with corresponding losses in income and demand. Out of the blue, the famous Black Swan has landed in the middle of society. And unlike in the financial crisis of 2008/2009, government programmes such as stimulus packages, subsidies, loans or ultra-loose monetary policy can only reduce a severe bleeding like a band-aid, they cannot heal the injuries the virus is causing to the economy. Printing money does not change the contagiousness of the virus. However, state aid can prevent the patient "economy" from bleeding to death. State aid can only support, but not replace individual initiatives.
High-Tech Gründerfonds is affected by the Crisis on two different Levels
The management company with its 70 employees on the one hand, and the portfolio of currently 305 companies on the other. At the end of February, we developed a three-step plan and activated the third step on 12 March after a positive case in the team: All colleagues worked from home and we stopped all business trips. The aim was to protect everyone's health and to keep the fund operational. We succeeded in both. Thanks to an efficient IT infrastructure and a quick adjustment of our working methods, we were able to continue working without delay. In the meantime, we have held three investment committee meetings, one advisory board meeting of the fund and one meeting of wealthy private investors online via Microsoft Teams. We are holding the Family Day planned for 26/27 May as an online event and are planning the main event for 5/6 October at the Kameha in Bonn.
The effects in the portfolio were very different
Quite a few companies are benefiting from the crisis: digitisation is accelerating, sales are shifting even faster from offline to online. IT security is becoming even more important and an intermediary platform for 3D printing is benefiting from interrupted supply chains. Many companies, especially those that have recently succeeded in very extensive fundraising – particularly life science companies that have not planned any sales anyway – are hardly affected. However, more than half of the companies are suffering from the Corona crisis: sales are collapsing, especially in the travel and tourism sector, financing commitments are being withdrawn and exit processes are being stopped on the home straight.
Initially, two points were crucial: Firstly, keep calm and understand the situation: Is my company affected at all and in what form and to what extent? Secondly – and this is the crucial point – what does the liquidity of the company look like? When is there a risk of running out of money? As in any crisis, cash is king. If a company is no longer able to meet its obligations, it loses its right to exist and usually goes bankrupt. Currently, there is a certain grace period due to the suspension of the obligation to file for insolvency in the context of the crisis. As in normal times, there are three ways to secure liquidity:
- Generate sales or at least down payments
- Reduce costs and
- Fundraising
Even if sales go down, there are a number of ways to compensate this: You can try to bring forward sales or advance payments. Especially with recurring sales, it is always possible to conclude 3-year contracts, for example, and to invoice them in full in advance. The fine art of sales is to convert on-site personal sales to online sales. If you succeed in selling a complex product that requires explanation via video conference instead of an on-site appointment, you can increase your sales productivity many times over - even after the crisis.
No matter how well a company is managed, there are always costs that can be reduced without noticeably limiting performance. Experienced management consultants quote values between 10 and 20%. The largest cost block is regularly personnel costs. In the short term, it is possible to reduce wage costs through short-time work without losing valuable employees. If nothing helps, there is no way around dismissals. Very bitter in individual cases for those affected, but simply necessary to ensure the survival of the entire company.
There are many ways to bring in new funds – equity or debt – from outside the company, even during the crisis. Certainly, there are investors whose focus is shifting to the existing portfolio and are therefore no longer making new investments. However, experienced investors know that the best companies emerge from crises: From Microsoft (oil crisis 1975) to Facebook (burst internet bubble 2004) to the companies of the gig economy (financial crisis 2009). In addition to traditional financing, there are also government debt and equity options. Unconventional, but not impossible, is financing by the company's own employees: What is meant here is not so much the deferral or even the waiving of wages, but the investment by the company's own employees. For example, Hybris, a billion-dollar exit to SAP, raised 2 million euros from its employees in difficult times many years ago.
What will happen in the Future?
We know for sure, that the crisis will end. And we also know with certainty that there will be a significant boom afterwards. What we don't know is how long the crisis will last: Is it going to be a few months, a year, or even longer? The key is to survive the crisis and at the same time come out of it strong enough to participate in the boom that follows. This crisis is different from any we have experienced before. Never since World War 2 has there been such a simultaneous supply and demand shock. Therefore, there are no empirical values or patent remedies. Cash is king and good, which means creative and unconventional entrepreneurship are now in demand.
The post-crisis world will look different from the pre-crisis world. We will place much more emphasis on resilience. Instead of squeezing out the last euro of profit, we will learn to value buffers. The naivety of the crisis-free last ten years will have disappeared. Even the under-35s will have learned that things can't always go up. Savings as a buffer against future imponderables will become more important than fancy holidays. We will see a new world of work that is much more digital and much more decentralised. The older generation will be much more open to the home office wishes of the younger generation. The working world will become more flexible, making family and career much more compatible. Some markets will recover, others will not: we will no longer get on a plane for one or two meetings, but instead exchange ideas via video conference. This will not only be good for the work-life balance and the cost structure of companies, but also for the stressed environment.