Tactical advice for defense techs
Surviving the downturn
We learned recently that defense tech is not immune to layoffs. Rebellion Defense laid off as much as 40% of its workforce.
Of course, this is just representative of broader trends in tech.
Let’s explore a few steps that founders and VCs can take to protect their defense tech and dual-use companies in these difficult times.
If defense tech companies are experiencing declining valuations, difficulty fundraising, and mass layoffs, both venture capitalists and startup founders need to consider some tactical-level advice to help them navigate this period. Here are some tips:
Diversify your portfolio: Venture capitalists likely have a diversified portfolio of investments mitigating the risk of any one company's performance. That’s just modern portfolio theory. I wouldn’t advise most firms to have a strictly “defense” fund. Think of the number of crypto funds that popped up at the end of 2021 and beginning of 2022. They’re largely struggling. Similarly, founders should diversify their revenue streams and not rely on a single large contract or customer to carry them. Obviously, defense tech companies need to sell to the defense department and services—but they should work to diversify their contracts. Not only does this protect them from a contract falling through but also increases their ability to raise funds.
Focus on profitability: Investors and founders alike need to focus on achieving profitability as soon as possible, to make sure they have the necessary financial resources to survive a market downturn.
Cut costs: Sometimes profitability is a long way off despite the push to achieve it. Startups should assess all areas of their business to see where they can cut costs. This might mean reducing headcount or finding more cost-effective ways to run the company. It is crucial to maintain a lean operation until the market recovers.
Communicate with stakeholders: Both investors and founders should communicate regularly with their stakeholders to keep them informed of the company's progress and any potential challenges. Transparency builds trust and can help keep stakeholders committed to the company's long-term success.
Be patient: It's important to remember that market downturns are cyclical and that the tech industry has a history of bouncing back from difficult times. Investors and founders who can weather the storm and stay the course can emerge stronger when the market recovers.
Seek advice from experienced professionals: Investors and founders should seek the advice of experienced professionals who have weathered previous market downturns. They can offer insight into what works and what doesn't during difficult times, helping to inform investment and strategic decisions.
In summary, diversification, focusing on profitability, cutting costs, communication, patience, and seeking advice from experienced professionals are some tactical-level advice to give venture capitalists and startup founders to help them navigate a market downturn.
Oh, and maintaining a healthy amount of optimism that we will weather this storm and continue to build great things.
Keep building,
Andrew