Let’s face it, times are tough. We are in the middle of a major health crisis that, depending on its outcome, could lead to the biggest economic crisis in our recent history. Dark predictions are not popular, yet many of them come true day after day.

Like other VCs, we have spent four busy weeks working hand in hand with our startups to navigate through these uncertain times. Slowly understanding what lies ahead is not enough — there is little or no time to react and act — which is the most challenging.

The only way for startups to navigate through this “fog of uncertainty” is to draw up scenarios and seriously prepare for the worst disruptions and changes in activity. Most importantly, these scenarios must be carefully studied so that startups (and VCs) can reinvent themselves — we are not simply faced with a virus that comes with winter and goes with summer. The World is on the verge of a major power shift that was already well underway before and which the health crisis has only accelerated. Only one thing is certain: the next normal will be very different from the current one and startups have a role to play in defining it.

That’s why we have decided to share our baseline scenario with you. It’s not a prediction but it’s what appears to be, for us, the most likely path at a given time. In our series of articles, which we will post in the coming weeks, we will delve into the impact of Covid-19 on different industries. We hope this will help startups reinvent themselves as soon as the initial storm passes.

Our baseline scenario

Phase 1: Quarantine period — Fighting through the sanitary crisis

The quarantine period will end when the number of infected patients is sufficiently low and when secondary peaks can be managed by measures other than quarantine. In Wuhan, the quarantine period lasted 10 weeks. So, we can say that the best-case scenario for the EU is 10–12 — we expect quarantine to end beginning of June in France and 2–3 weeks later in the UK. Partial quarantine measures may allow to lift lockdown earlier, with specific business activities resuming as early as the end of April, but there is little visibility on that for now ; it could increase the risk of future epidemic peaks. Currently, France and the UK do not plan to partially reopen until the second week of May.

Phase 2: Safe-mode period — Learning to co-exist with Covid-19

Once lockdown is lifted, the world will go through a “safe-mode” period during which the economy will operate at limited capacity. People will return to work, many business activities will resume (with the exception of the travel, tourism and event industries) with the risk of a second epidemic peak.

With the economy running at 85–90%, we also risk a prolonged economic depression. A sharp rebound seems increasingly unlikely, especially since government measures are unlikely to prevent bankruptcies and unemployment. Injecting money and loans will not fully revive an already over-indebted economy, and supply and demand may not return to pre-crisis levels due to the remaining virus risks. This period could end at best by the end of Q4 2020, or even 2021, until a vaccine is developed and distributed at scale.

Phase 2 will be even more challenging than the quarantine period, but this is also where new opportunities will arise. As everyone will be forced to change their behaviour for a extended period of time, new habits will emerge. Trends will die, appear or strengthen in all sectors.

Phase 3: Period of recovery — Development and distribution of a vaccine at large-scale

It is difficult to determine when exactly the period of recovery will begin. It depends primarily on the distribution of an effective vaccine, which is best done after 12 to 18 months (i.e., until 2021). By that time, the trends emerging in phase 2 will have become the new “normal”.

What it means for startups

Phase 1

We are well into Phase 1, so many of these measures and actions should already be in place.

• Focus on cash and on reducing your burn rate, with the sole aim of maximizing runway. At Aster, we recommend that our portfolio companies review their forecasts for the next 24 months and consider the poor outlook of Q3 and Q4 2020
• Communicate regularly with your customers and existing investors, they will both provide you with essential information on what’s next
• If you can afford it, transition parts of your business to support the war economy to keep the country’s economy going while addressing the health crisis. If you can’t afford it, freeze your activities for three months with minimum service or furlough.

The key is to proactively look out for new opportunities. In the coming months, many trends will disappear, and many will emerge. Ask yourself the following questions:

• What are my customers facing right now? What is the impact of Covid-19 on their business?
• How can I help them restart their business as soon as possible?
• Who are the people least affected by the crisis?
• Can my existing product be useful to other customer segments? To other markets?
• Are there features I had planned to release in the future that suddenly become more relevant now?
• Can my product be useful to a completely different industry?

It’s important to adopt an even more customer-centric perspective than before. We have seen many 180-degree turns recently as companies shift from B2B to B2C or even change their target customers. This was the case for many food and logistic startups that saw their revenue drop to zero in one week but returned to their pre-crisis revenue levels two weeks later by changing customers.

Finally, if your company’s activity has not stopped, make sure to implement the best health and safety guidelines, in order to keep your team safe and the business up and running.

What does this mean for fundraising?

It’s probably the worst time to be raising funds right now. VC are spending most of their time working hand in hand with their portfolio companies or their LPs. So, we recommend raising later, if you can. If you can’t, it’s really important that you factor the crisis into your forecasts. Assume the worst and build options. You can’t ignore the fact that half of the world’s population is locked in.

Phase 2

• Keep focusing on cash, strict health and safety guidelines and transparent communication with your team
• Constantly reassess your customers’ priorities in order to turn to new products, new features and new customers if needed
• Secure your value chain, ease the work of your partners, customers, suppliers and employees. The goal is to stabilize operations in the light of the ever-present virus. Keep in mind that one of the major challenges will be the refusal of people to go back to work because they don’t feel safe enough. There will also be undisciplined people wo will behave in a risky manner, as if everything was over.
• Consolidate and implement the pivots identified in phase 1, whilst relaunching the “old activities” if any remain
• Develop a Business Continuity Plan with even more levels of contingency than usual

What does this mean for fundraising?

During the safe-mode period, fundraising should slowly return to normal. While the situation of many funds will not be very good, others will have updated their investment thesis with a focus on counter-cyclical sectors that are recovering quickly and on new trends.

Phase 3 (Conclusion)

If Phases 1 and 2 are well managed, this will be the new golden age for surviving startups and VCs:

• VCs are well aware that the post-crisis deals are the best ones: there are less funds, so less competition and you are able to IPO anything you want in 10 years’ time at the peak of the next bubble
• Startups have the opportunity to follow and create new trends in a context of weaker competition

Overall, most countries in the world will suffer tremendously and will have to rebuild a lot from scratch. Some might argue that humans don’t change and that we may simply rebuild as before. However, we believe that many major trends, such as climate awareness and the digital transformation of the industry for instance, will accelerate and become more widespread. And as countries will reinvest in future growth engines, policymakers will need to follow them too.