Preparing for COVID-19

Over the last week, many CEOs, executives, and fund managers have asked me about the novel coronavirus outbreak (referred as COVID-19) and its possible timeline and effects on their business activities.

Yesterday, the World Health Organization (WHO) updated COVID-19’s mortality rate to 3.4%. This now means the virus is more than 30x deadlier than the flu.

Alarmingly, leading Harvard epidemiologist Marc Lipsitch has predicted that 40-70% of all Americans will be infected by COVID-19 before the outbreak concludes.

Given the uncertainty and limited information, I’ve decided to publicly share the below summary that I sent to the companies and funds I advise or have invested in:

• Whether from actual events or solely public precautions, I anticipate 2020 will be a tremendously difficult year for economies and businesses, and ultimately have a profound effect on daily lives.
• Many familiar and historic brands will be wiped out through bankruptcy as few businesses have the cash balance necessary to endure quarters of operations with limited revenue.
• Millions — or growing increasingly likely, tens of millions — of Americans will lose employment through no fault of their own. The wealth disparity will further divide between well-salaried roles and hourly-rate service workers.
• Companies should expect a negative growth rate for 2020. Maintaining status quo from 2019 will be viewed as an incredible and commendable feat. The private markets will be understanding once things rebound, though the public markets will likely be less friendly.
• Investment funds should expect a decline in IRR, especially if the outbreak extends for several quarters. M&A activity will slow or may even stop for a period. Likewise, I believe LPs will also be understanding given the market downturn.
• Both companies and funds should pause hiring for all non-essential roles until more information is known.
• Leadership should create date-based checkins (ideally every two weeks) to assess the organization, the trend changes of both the virus and industry, and how the information should impact decision-making around operations, marketing, and sales (or investments).
• State and federal governments will further push social distancing methods such as working from home, closing schools, and preventing mass gatherings. This is already happening proactively as Amazon has halted all business travel, Twitter asked its employees to work from home, and Adobe canceled its own Adobe Summit. It’s imperative for leadership to ensure employees have the technological resources (e.g. laptop, cords, Zoom, etc.) to work productively from home for months.
• Leadership must support their team’s needs by listening carefully. If an employee feels sick, tell them to take a few days off to fully recuperate. If they need to take care of their children due to lack of childcare or to visit the doctor/hospital, be flexible with their schedules.
• Early-stage startups without material cash reserves will be adversely affected far sooner. This may become a forcing function of having enough runway to endure the outbreak’s timeline versus laying off people. Founders should immediately approach their closest, friendliest existing investors to top-off their coffers with some additional capital (assuming acceptable terms) to mitigate the unknown circumstances. Likewise, founders should understand the unfortunate reality that some furloughs or layoffs may need to occur.

Ultimately, as the virus’s effects on American society and companies become increasingly clear, the federal government must soon intervene to provide financial certainty in these uncertain and unprecedented times.

And with that, stay healthy and wash your hands.