Venture-backed startups are facing a rapidly cooling fundraising environment. In order to continue driving value in this shifting market, startup leaders and their investors must seek to objectively assess their businesses and determine whether a company is positioned to survive for the long-term or if a sale would be most beneficial.

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DrivingValueWhen Funding Runs
Low
Date: June 15, 2016
David Johnson
Interim Executive (CRO, COO, CFO)
Restructuring and Turnaround Advisor

2. “There’ a big difference between mostly dead and all
dead”
‒ The Princess Bride
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3. • David Johnson is a career change agent who has
served as interim manager or financial advisor for
dozens of companies in transition.
• In his nearly 20 years as a change agent, David has
served as an advisor, board member, interim
manager, investor and operator at organizations
ranging in size from pre-revenue startups to
Fortune 500 organizations.
David Johnson
Email: david@abraxasgp.com
Ph: 312-505-7238
Twitter: @TurnaroundDavid
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4. Overview
After a robust period of enthusiasm following the 2008-9 recession, Venture
Capital investment in the U.S. appears to be trending downward.
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$-
$2,000
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AvgInvestment($MMs)
Investment($MMs)
U.S. Venture Capital Funding • Since Q3 15, LTM
investment has declined
by $5.25B, or 8.3%.
• Volume is down as well,
but by only 4.9%.

5. Investing for Growth vs.Wasting Money
• With venture capitalists encouraging
startups to push for growth at all costs,
many companies fell into wasteful
spending habits, reminiscent of the
dot-com boom.
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Dropbox reportedly spent $100,000
on this chrome panda statue

6. A New Funding Reality
• Startups are finding it more
difficult to engage with
prospective funding sources.
• A number of prominent startups
have raised “down rounds”.
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7. Cash Burn
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Venture capitalists are urging their portfolio companies to focus on “cash burn”

8. Back to Work
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• Valuation is an outcome, not a
determinant, of the hard work of
building a successful company.
• Companies should refocus their
efforts on growing a business,
rather than trying to become a
platform to attract more funding.

9. Cash Management
• Assess cash burn and take steps
to minimize
• Right size cost structure
• Develop and manage to a weekly
cash budget
Business Model Reset Goals
• Objectively assess soundness of
the business model
• Positive gross margins?
• A cost structure with implied
operating leverage?
• Given the new funding
environment, what is the goal?
• Work toward a sale?
• Eliminate cash burn and grow for
the long-term?
Survival Steps forVC-Backed Startups
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10. Key Takeaways
1) VC investment is trending down.
o Startups should expect a culling process, and investors will be increasingly harsh in
picking the “winners” and “losers” in their portfolios.
2) Focus on cash flow.
o Companies with positive cash flow control their own destiny, while companies reliant on
continuous streams of investment are susceptible to market shifts.
3) Assess the situation objectively.
o Some startups will need to rapidly shift into a cash-preservation model while they look
to manage an orderly sale process, whereas some are close to where they need to be to
self-fund indefinitely.
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