Australian venture fund managers warn local startups must make tough choices on spending if they are to maintain research and development spending in the wake of a credit crunch.
"We provide early-stage startups with long runways precisely so they can invest in R&D and product development. Naturally, sales and marketing will be challenged over the next few months, meaning now is as good a time as ever to be laser-focused on product," AirTree ventures partner John Henderson said.
"Our general advice to [our] portfolio is to trim unnecessary fat. But product is muscle, not fat."
Chief executive of lobby group StartupAus Alex McCauley said he expected appetite for research expenditure, which carries incentives under the tax offset scheme, would be maintained despite challenges posed by Covid-19. Other spending would be paused to achieve this, however.
"The stories I've been hearing is that companies are looking at ways to cut cash anyway they can that doesn’t cut R&D spend... they'll be looking to reduce costs in areas like sales and marketing, where the equation doesn't make sense anymore," Mr McCauley said.
Those pressures could mean staff in these areas are stood down or let go before those working on research or product development, he said.
Australian startups had been spending up big on marketing roles in recent years – a national salary guide that StartupAus contributed to 18 months ago revealed Australian companies pay chief marketing officers as much as $260,000 a year, with senior marketing managers paid on average $138,000 where companies had raised less than $5 million.
Investors have been urging their portfolio companies to find cost savings in recent weeks, warning that survival and core product is more important that growth throughout the coming months.
Co-founder of Rampersand VC Paul Napthali wrote to companies via Medium that now was the time to pivot from "growth to survival" and put aside more ambitious goals.
"Assume you need to get through all of 2021 and beyond without additional capital and your revenue is very hard to get," he wrote.
Chief executive of Bailador Technology Investments David Kirk said necessary cost cutting would likely eat into research expenditure for many technology companies.
"Inevitably some of the cuts will be to R&D staff and this will slow R&D investment," he said.
"Most companies will survive and then the questions will be, how quickly can they rebuild revenue, how supportive is their current shareholder base and at what price can they raise new funds?"
Mr McCauley has called for a rethink of how research and development tax incentive refunds are paid this year, suggesting startups could receive a prepayment equivalent to their refund for the 2018-19 refund, to be reconciled at a later date.
"It's one way to effectively inject cash into businesses," he said.