Video here: https://tinyurl.com/vdttey9 (Recorded live on March 25th, 2020) We covered immediate fund raising, M&A, legal, and operational considerations startup founders and executives need to focus on while navigating through the COVID-19 crisis. Vitaly M. Golomb is the Managing Partner at GS Capital, will address what to expect in fund raising and M&A, as well as best practices on operations in an uncertain environment. Louis Lehot is one of the leading corporate attorneys in Silicon Valley and the Founder of L2 Counsel. He will address best practices and key legal considerations.

1. Startup Management
Through The COVID-19 Crisis
MARCH 25th, 2020

2. Agenda
1. The Macro Environment
2. What to Expect in Startupland
3. How to Respond
4. Legal Considerations
5. Q&A
6. Resources & Contacts
Vitaly M. Golomb
Managing Partner
Louis Lehot
Founder

3. Before we start…
Slides and recording will be sent out after the webcast
Use the Q&A function
Contacts: v.golomb@gscap.co and louis.lehot@L2counsel.com

4. 1. The Macro
Environment
A drop in business activity
Supply chain & industries reconfiguration
Some historical context

5. 53london.edu The economics of a pandemic: The case of Covid-19
Impact on stock marketsIt all started with large declines in the stock markets
Source: London Business School - The economics of a pandemic: the case of Covid-19 by Paolo Surico and Andrea Galeotti

6. In the mean time, total U.S. consumer debt hit levels higher than 2008
Source: Fabrice Grinda - The global economy and its impact on startups in the time of COVID-19

7. U.S. corporate debt now exceeds prior peak at housing bubble
Source: Fabrice Grinda - The global economy and its impact on startups in the time of COVID-19

8. 50The economics of a pandemic: The case of Covid-19
A major recession coming
oll of top economists:
ajority of European and US
conomists predict major
ecession
uropeans have a stronger view
an US
ess clear in emerging markets
voxeu.org/article/economic-impact-pandemic-igm-forum-survey (12th March)
Source: London Business School - The economics of a pandemic: the case of Covid-19 by Paolo Surico and Andrea Galeotti
We are going into a major, global recession

9. 59london.edu The economics of a pandemic: The case of Covid-19
The most affected sectors
McKinsey Global report (9th march 2020)
Source: London Business School - The economics of a pandemic: the case of Covid-19 by Paolo Surico and Andrea Galeotti
All sectors impacted, some severely

10. 55The economics of a pandemic: The case of Covid-19
Impact on restaurants
com/state-of-industry
Source: London Business School - The economics of a pandemic: the case of Covid-19 by Paolo Surico and Andrea Galeotti
All sectors impacted, some severely
56london.edu The economics of a pandemic: The case of Covid-19
Impact on durables expenditure
In face of negative income shocks, one of the first
and strongest response of households with high
marginal propensity to consume is to postpone
vehicle purchases. Increase in uncertainty is likely
to have a similar effect that works via a
precautionary motive.
Evidence (from projects funded by ERC grants):
U.S. - Misra-Surico (2014, AEJM),
Italy - Surico-Trezzi (2019, JEEA),
U.K. - Cloyne-Ferreira-Surico (2020, ReStud)
Data on China suggests overall impact will be
extraordinary large! Unfortunately, this is only the
direct effect. More on this later.

11. london.edu The economics of a pandemic: The case of Covid-19
Impact on the supply chain cont’ed
Source: London Business School - The economics of a pandemic: the case of Covid-19 by Paolo Surico and Andrea Galeotti
Supply chains will also be affected

12. Source: London Business School - The economics of a pandemic: the case of Covid-19 by Paolo Surico and Andrea Galeotti
Labor markets are unequal and will change forever
65The economics of a pandemic: The case of Covid-19
earners more likely to work from home
ould work
LS
ross
ndustry
or:
%
%
%
tm)
66london.edu The economics of a pandemic: The case of Covid-19
Strong heterogeneity across sectors
Most workers in
manufacturing, retail,
leisure, construction
and transportation
and utilities can hardly
work from home.
Source: BLS (https://www.bls.gov/news.release/flex2.t01.htm)

13. 64f a pandemic: The case of Covid-19
re likely to work form home
es-work-from-home-policy-ford-general-motors)
Source: London Business School - The economics of a pandemic: the case of Covid-19 by Paolo Surico and Andrea Galeotti
We will likely see long-term changes
68london.edu The economics of a pandemic: The case of Covid-19
Source: World Economic Forum (https://www.weforum.org/agenda/2020/03/3-ways-coronavirus-is-reshaping-education-and-what-changes-might-be-here-to-stay/)
Home schooling, internet access and education
More than 770 million learners are now being affected by school and university closures (United Nations).
School closing: “home-schooling” and on-line tutorial
• Empirical studies show strong impacts of quality of
parental education on pupil educational attainment
and long-term outcomes (Heckman, 2006) Science
Hence, School closing will reinforce this inequality
• Access to on-line resources not universal:
Between 56 million and 80 million people in China
reported lacking either an internet connection or a
web-enabled device in 2018 (NY Times, March 17)
10% of Households in UK have no internet connection.
• The closures could disproportionately affect children
from poor and low-income families, many of whom
receive their weekday breakfast and lunch and, in some cases, dinner on campus (LA Times, March 13).

14. 74The economics of a pandemic: The case of Covid-19
Supply vs demand
GM poll of top economists
uggest that impact of
emand shock will be larger
han that of supply
voxeu.org/article/economic-impact-pandemic-igm-forum-survey
Source: London Business School - The economics of a pandemic: the case of Covid-19 by Paolo Surico and Andrea Galeotti
Reduced spending will have the largest economic effect

15. But history should make us optimistic
Source: Fabrice Grinda - The global economy and its impact on startups in the time of COVID-19

16. 2. What to
Expect in
Startupland
Slow down in business
Customers going out of business
Slowdown in funding & exits
Slowdown in online advertising
Cheaper office space
Cheaper/easier to hire

17. There will be a slowdown in funding & exits
Source: Fabrice Grinda - The global economy and its impact on startups in the time of COVID-19
US VC Deal Activity

18. Slowdown in venture activity already here
Source: Pitchbook
Global VC deal volume

19. What’s happening in emerging growth companies
54% closed all offices worldwide
46% have required or mandated WFH policy
37% suspended all domestic work travel
3% have received a positive COVID19 test
8% of employees awaiting a test result
69% moved interviews to a virtual environment
22% have delayed new hire start dates
2% requiring temperature checks for employees
6% provided WFH meal reimbursements
16% WFH furniture reimbursements
2% provided a childcare stipend
Source: Tech GC survey

20. What’s happening in M&A deals
M&A deals have softened, deals being renegotiated, terms becoming draconian
Reps & Warranties Insurance tougher to get, COVID-19 exclusion
Seller response: insertion of the “COVID-19 qualifier”:
if the reps become untrue due to COVID-19, you assume the risk.
Pause by private equity to reassess the portfolios
Strategics still proceeding, mostly

21. M&A deal terms to watch for
Purchase price adjustments for decrease in working capital
Focus on force majeure clauses in customer/supplier contracts
Focus on insurance coverage for COVID-19
Focus on cybersecurity
Focus on employee due diligence
Timing delays expected – push the outside date
“Material Adverse Change” definition (must be durationally significant >1 year, specific to target
Interim operating covenants (sellers need flex to respond to COVID-19)

22. 2. What to
Expect in
Startupland
Slow down in business
Customers going out of business
Slowdown in funding & exits
Slowdown in online advertising
Cheaper office space
Cheaper/easier to hire

23. 3. How to
Respond
Cut costs immediately
Develop crisis communications plan
Take care of your team
Delay hiring until it hurts
Expect worst case scenario sales
Rethink business models and
look for new opportunities
Be alert and ultra disciplined

24. 4. Legal
Considerations
Rounds in process
Investors backing out,
convertible notes terming out,
and other “coincidences”
Employees and contractors
Vendors
Customers
Regulators and Government

25. Q&A
Vitaly M. Golomb
Managing Partner
Louis Lehot
Founder

26. “Accelerated Startup” in book, ebook, and audio book:
https://www.amazon.com/dp/0998406309
Protecting Contracts in the Age of COVID-19: ‘Material Adverse Change’ Clauses
https://www.ipwatchdog.com/2020/03/18/protecting-contracts-age-covid-19-material-adverse-change-clauses/id=119904/
London Business School Slides and Resources:
https://sites.google.com/site/paolosurico/covid-19
Sequoia Founder Letter:
https://medium.com/sequoia-capital/coronavirus-the-black-swan-of-2020-7c72bdeb9753
Mark Suster Presentation:
https://www.slideshare.net/msuster/funding-in-the-time-of-corona-virus
Fabrice Grinda Article:
https://fabricegrinda.com/the-global-economy-and-its-impact-on-startups-in-the-time-of-covid-19/
NFX - 28 Moves to Survive (& Thrive) in a Downturn
https://www.nfx.com/post/28-moves-survive-thrive-downturn
Vitaly M. Golomb
v.golomb@gscap.co
Louis Lehot
louis.lehot@L2counsel.com