Thread by @msuster, 1/ Important PPP Update. The government has just clarified its position with [...]

1/ Important PPP Update. The government has just clarified its position with respect to the PPP program today in ways that affect VC-backed startups. I will give you my view on important change, but it is here if you'd like to read: https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf

2/ Previously I believed the goal of the PPP was to "Protect Paychecks" (read: jobs) at small businesses and I believed the government's goal was to avoid unnecessary increases to unemployment. Today's guidance changes my views in one important way ...

3/ The previous decision tree for startup management I believe was:
- Financial duress related to Covid-19?
- Protecting jobs if you take PPP?
- Don't violate the Affiliate Rule?
- Can you obtain board approval?

4/ With today's guidelines, in addition to previous decision tree for whether you qualify for a PPP loan you also must consider:
- Do you have access to other sources of capital (other than the PPP) that are not significantly detrimental to your business?

5/ On the surface I believe this may make "protecting paychecks" at tech startups more difficult because without a PPP loan I believe some management teams are likely to be more aggressive in cutting costs, which means cutting jobs.

6/ If you applied for PPP and with new guidance no longer believe you qualify you MUST return the money by May 7th to have a "no fault" status on your previous certification with your bank

7/ Consequences of new guidance seem clear. If you believe you have other sources of capital not detrimental to your business you should not accept PPP loan. I believe founders should consider re-discussing with board calls to discuss whether the board still agrees accepting PPP

8/ Note that I am NOT saying as a VC-backed company you can't qualify. It is possible that you raised money but do not believe existing investors can or will support you going forward and determine that you don't have other viable sources of capital, or ...

9/ It may be that you determine that your immediate cash need to protect jobs is so acute relative to your ability to raise capital in a way that is non-detrimental to your business. These are decisions CEOs must process

10/ Obviously startups should consult their lawyers before making these difficult decisions regarding the PPP loans

11/ Of course a program designed during an economic crisis is bound to change and be clarified and there may be further changes in the weeks / months ahead but for now I think the guidance makes VC-backed tech startups status pretty clear

12/ Law firm Cooley did a very good job of summarizing today's guidance here [end]
https://www.cooley.com/news/insight/2020/2020-04-23-ppp-loan-program-new-faqs-released-necessity-guidance

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