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Estimating the Impact of the Coronavirus on Growth

As we readjust to the impacts of the coronavirus, I’ve been asking myself: what is a basic useful model for estimating the growth impact to a software company? Of course, every business should develop a more conservative model, focused primarily on cash management to provide a longer runway. I expect the venture market to slow round counts for a quarter, but then resume. As growth rates fall, valuations should move similarly. My hunch originates from this analysis of the 2008 crisis. But it’s too early to say for sure.

Getting back to the original question, what’s a basic model to box the impact of the virus to a business? Here’s a basic model you can download and play with the inputs. You can change the bolded numbers. The idea is to create a ballpark estimate.

Let’s use the example in the sheet.

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This is a company at 15M in ARR. They were growing at 20% per quarter before the virus or 107% annually. The company estimates that Q2 bookings will fall by 90% in Q2, 75% in Q3, and 50% in Q4 relative to their 10% quarterly growth rate. Instead of growing 107% annually, they will grow 40%. The COVID Growth/ARR Growth shows the growth rate is about 58% of the previously projected growth rate.

This is a very high-level tool. It doesn’t model cash, hiring, account churn, new latency in sales cycles. But it’s a quick way to understand the impact to a business’ growth trajectory during this turbulent time.