This piece shares insights from two venture capital experts on how startups can survive a crisis like COVID-19. They argue small companies have an edge because they're flexible and have low fixed costs. The key advice: cut costs decisively, hoard cash, and don't expect a quick recovery. Examples include OpenTable surviving the 2001 dot-com bust while rivals failed, Zappos founder negotiating longer payment terms with suppliers, and Zoom seeing its stock rise during the pandemic.
At a Glance Benchmark Capital partners Bill Gurley and Chetan Puttagunta, in an episode of Invest Like the Best, discussed the impact of the COVID-19 pandemic on the early-stage venture capital ecosystem. Their core argument is that during a crisis, small startups gain an advantage due to their flex
Benchmark Capital partners Bill Gurley and Chetan Puttagunta recorded this episode on March 12, 2020 (during a sharp decline in U.S. equities), discussing the impact of the COVID-19 pandemic on the early-stage venture capital ecosystem. Core thesis: In a crisis, small startups gain an advantage due to their flexibility and low fixed costs. Experience from 2009 shows that outstanding entrepreneurs can rise amid adversity, but the return of risk will be far slower than its retreat.
Bill Gurley argues that risk accumulation in Silicon Valley is a slow, continuous process, but risk dissipation happens in an instant.
Chetan Puttagunta adds a key lesson from 2009: the return of risk is far slower than anticipated.
Chetan Puttagunta argues that small size itself is a core advantage during a crisis.
Bill Gurley added the case of OpenTable:
Bill Gurley points out that consumer-facing companies are hit harder and more directly than enterprise software firms.
Chetan Puttagunta, drawing on enterprise software experience from 2008–2009, highlights three key changes:
1. Extended sales cycles: Enterprise customers will make decisions more slowly.
2. Limited impact on renewal rates: Customers will not immediately switch tech stacks due to the macro environment.
3. Changes in cash flow cycles: Days Sales Outstanding (DSO) will significantly lengthen as liquidity tightens across the system.
But crises also present opportunities: When customers request extended payment terms, founders can dig deeper by asking, "What is actually happening in your business today? Is it a revenue issue, a cost issue, or a conversion issue?" — thereby building deeper value-oriented relationships.
Bill Gurley emphasizes that in private companies, cash is everything.
Bill Gurley recommends modeling multiple scenarios and developing action plans.
Chetan Puttagunta notes that most people operate on "autopilot" during normal times, making simple extrapolations of business assumptions.
The case of Tony Hsieh (Zappos):
Chetan Puttagunta argues that the core of remote work is not software tools, but company culture.
Chetan Puttagunta believes the following types of companies will benefit during the crisis:
However, he warns: Do not start a new company just to chase the current environment.
| Position | Analyst View | Key Data |
|---|---|---|
| OpenTable | Positive Case (Historical) | Two competitors went bankrupt in 2001; OpenTable survived through careful cost management |
| Zappos | Positive Case (Historical) | Tony Hsieh extended payment terms from 45 days to 90 days |
| Zoom | Positive Mention (Public Market) | Stock price rose during the crisis; service remained operational |
| Elastic | Positive Mention (Remote Work Benchmark) | Remote-first company from day one; mature asynchronous communication culture |
| Airbnb | Mentioned but not deeply analyzed | Cited as a case of a late-stage private company potentially severely impacted |
1. Bill Gurley: Risk accumulates slowly and dissipates extremely quickly. "In Silicon Valley, risk accumulates very slowly and builds up continuously. Then, when a reset occurs, risk vanishes instantly. You can have a 10-year period of rising risk, and then the risk disappears."
2. Bill Gurley: The quality of entrepreneurs is actually higher during a crisis. "During a period of rising risk, the average quality of entrepreneurs who secure funding declines. When risk dissipates, the only entrepreneurs left are those who inherently choose entrepreneurship as a way of life."
3. Chetan Puttagunta: Small businesses have a structural advantage. "If a company with $1 billion in revenue suffers a 10% shock, the impact is enormous; but if a company with $1 million in revenue suffers the same proportional shock, it is entirely manageable."
4. Bill Gurley: Never do a 5% or 10% layoff. "It won't yield any meaningful benefit, yet it will put you through all the painful cultural trauma. If you must cut staff, cut enough in one go to buy several months of cash runway."
5. Chetan Puttagunta: The return of risk is far slower than expected. "After the market bottomed in March 2009, there was a widespread expectation of a 'double-dip recovery,' so the return of capital was very slow. The recovery was gradual, unpredictable, and likely to occur in 'fits and starts.'"
6. Bill Gurley: Late-stage private companies are more fragile than public companies in a crisis. "The cap tables of private companies are designed only to go up. When a down round is needed, mechanisms like anti-dilution clauses make things extremely complicated. An IPO unlocks all that complexity, converting everyone into common stock. Even the largest FANG stocks have historically experienced drops of 40-50% — but as public companies, that is not the end of the world."
7. Chetan Puttagunta: The core of remote work is not the tools, but the culture. "Asynchronous communication becomes key. Write things down so the team can consume daily activities asynchronously. Transparency becomes even more important."
8. Bill Gurley: In times of fear, ask yourself 'what greed means.' "Tony Hsieh improved his competitive position during a difficult period by changing business terms. If a company has more capital than its competitors, it can push more aggressively during this window, while others are forced to pull back."