- NGP Capital’s managing partner Paul Asel says that the smart mobility industry has taken an especially harsh hit from the coronavirus, causing startup revenues to drop anywhere between 50% to 100%.
- As venture capitalists begin to pull back on new funding rounds, NGP Capital has already begun increasing its reserves in preparation for funding its portfolio companies that may struggle to survive in a world where they are generating zero revenue.
- Asel, an investor in the scooter startup Lime and the car-rental platform Getaround, says that he is advising all his portfolio companies to include a ‘zero-budget’ scenario in their plans to survive through the next 24 months in a worst-case impact from the pandemic.
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Although the coronavirus has wreaked havoc on the entire economy, the “smart mobility” sector has also been hit with something of an existential crisis — as the country retreats indoors, scooter startups and car-rental platforms may simply have no business for the next few months, or more.
Paul Asel, a partner at venture capital firm NGP Capital, has a front-row view of these effects. Not only is smart mobility one of the three investment themes of the firm’s portfolio, but Asel himself is an investor in electric scooter startup Lime, and car-rental platform Getaround.
“We just completed a four-week review of our portfolio, and 80% of every company is being impacted by this,” Ansel told Business Insider in an interview. “We’ve seen revenues dropped by 50 to 100 percent in the smart mobility space.”
Asel is telling his portfolio companies to make sure they have the money in reserve to be able to operate for the next two years, either by fundraising or by finding ways to stretch their funds to extend the runway before their cash runs out.
That’s a tough situation for startups that have no idea how long the coronavirus will continue to circulate around the country and place their businesses in limbo. Lime, which has shut down its scooter-rental operations in all but one market, has already called for an emergency funding round, according to a report from the Information. Meanwhile, Getaround has been looking around for buyers, Bloomberg reported.
As venture capitalists have tightened their purse-strings, it has become all the more important for startups to secure enough cash to remain solvent for the foreseeable future.
In fact, NGP Capital has already begun increasing its near-term reserves to fund its current portfolio companies in the event that any had less than nine-months of existing runway and was burning through its reserves.
“For companies that have overextended themselves with burn, it’s just really hard to back [up], and get to reasonable levels,” he said. “We are increasing our near-term reserves, thinking that internal funding is going to tend to prevail over external funding.”
Planning for a ‘zero-budget’ future
To survive in an environment that is rife with uncertainty, Asel is suggesting that startups do a series of scenario analyses to ensure they can operate more flexibly.
And he’s insisting that startup CEOs include a plan for a “zero-budget” situation in those analyses — that means no new funding and no new revenue to keep them afloat.
“Assume that this [virus] is not a three-month thing, but assume that this is going to go through the entire year and, and so do a series of scenario analyses,” Ansel said. “One of those scenarios needs to be a zero based budget… How do you get to a 24 months runway and how do you operate under that environment?”
It is a way of forcing startups to think through the worst-case scenario, Asel said. A self-described “paranoid optimist,” Asel is a strong believer in planning for the worst, even as he hopes that the best-case scenario will play out.
Some startups are well-positioned to be lean and mean for the next few months, according to Asel. If they can, they might not just survive, but also thrive in a post-COVID world with less competition and a less capital-intensive market.
“If they’ve got a moderate amount of burn and, and nine months or more runway, they’re able to course correct, reduce costs and extend to 18 to 24 months,” he said. “We believe, if they played through the current downturn, they would be better positioned in the long term.”