Bassat’s coronavirus warning for start-ups

The Seek co-founder says tech CEOs need to prepare for a potential ‘investor strike’ in the wake of COVID-19.

"It may be appropriate or prudent to make some decisions that preserve cash.”

Growing uncertainty caused by the coronavirus is beginning to plague Australia's tech start-up ecosystem, with the boss of venture capital outfit Square Peg, Paul Bassat, sending a letter to CEOs warning of a potential 'investor strike' and to plan for the fallout from COVID-19.

Mr Bassat, in a letter to the bosses of Square Peg's portfolio companies on Monday, said that the impact would likely affect the entire investor and start-up industries.

He pointed to advice that said if the CEOs were planning to raise funds in the next three to six months, they should instead consider doing it now.

Square Peg's companies include fintech Airwallex, home loan provider Athena, energy provider Amber and online design company Canva.

"We expect this crisis to affect your businesses differently. Some of you are already feeling the impact, and some of you aren’t, yet. We encourage everyone to be doing scenario planning on possible impacts and identifying what actions you might take in response," Mr Bassat, who also co-founded Seek, said in the letter.

Paul Bassat. Picture: David Geraghty

"It may be appropriate or prudent to make some decisions that preserve cash. That will be particularly true if your business is likely to be significantly impacted by coronavirus or if your cash position is tight. You might need to freeze hiring, reduce marketing, cut other discretionary expenditure or in more severe cases reduce team numbers.

"Our general perspective is that you should look to cut costs now if your cash position is not super strong and if you can’t ride out a protracted downturn."

He added that most of his portfolio companies are already well-capitalised, while some will be raising funds in the next few months.

"In extreme cases, investors stop investing new capital. In less extreme cases, it gets harder to raise capital and valuations can be impacted," he said.

"We haven’t seen evidence of an investor “strike” yet, but it is impossible to predict the future in a fluid situation like this. Consider your unique circumstances and capital needs."

Jack Zhang, the CEO of billion-dollar Australian fintech Airwallex, which has received investment from Square Peg, told The Australian that the ripple effects of coronavirus are being felt everywhere.

"As people cocoon themselves at home, they are spending less and travelling less, causing a decline in sales across several industries," he said.

"Our customers too have been impacted – especially those in the tourism and e-commerce sectors. We are supporting our customers as best as we can during this time, and we are keeping our hopes up that the worst will soon be over."

The coronavirus has also hit tech giant Atlassian, which cancelled its annual Summit conference in Las Vegas which was expected to draw several thousand people.

"From our point of view it's about keeping our employees safe," its CEO Mike Cannon-Brookes told The Australian. "So that's listening to all the different authorities, the CDC and department of health, and taking all the necessary precautions as part of running this business."