The world is battling the worst crisis it has seen in this century – the coronavirus pandemic – disrupting lives, economies, and homes on a global scale. Closer home, due to the outbreak, the very survival of the Indian startup ecosystem is at stake.
A NASSCOM survey shows that close to 70 percent of Indian startups have less than three months of cash runway. Apart from this, about 40 percent of startups have either temporarily shut down operations, or are on the verge of shutting down. Among them, the early-stage and mid-stage startups, especially in the B2C sector, have been most impacted.
A third of B2C startups have a runway of fewer than three months, while about 60 percent of these startups face closure, as revenues have plummeted to near-zero levels.
The funding scenario, too, is at its all-time low. According to a KPMG Venture Pulse study, VC investments all across Asia are at a 12-quarter low.
In such situations, how do both startups and investors react? What are the next steps to survive and handle the crisis?
Anisha Singh, Founding Partner, She Capital, talks to YourStory on the impact of coronavirus on startups and the investment community, and what will be the next steps in the near future for the ecosystem.
Having founded Mydala, Anisha understands what it means to run a business from the trenches and during economic downturns. From her experience, the founder and CEO of Mydala adds that there are different things that startups can learn during this period.
It is important to focus on core business fundamentals and work on innovative solutions. She explains that time has come when startups need to start thinking like traditional businesses with a focus on profitability, and creating a stronger foundation.
While different sectors will see different kinds of impact and will recover differently, Anisha, from her experience as a founder and now as an investor, explains what startups can do during such unprecedented times.
YourStory (YS): What is the impact that startups have seen because of the COVID-19 pandemic?
Anisha Singh (AS): Unless we’ve been under a rock, we’ve all seen NASSCOM’s report on a majority of startups having only three months of cash. COVID-19 caught all of us by surprise, and even the best and the most planned startups probably never planned a scenario of being brought to a complete standstill.
Most startups have seen their revenues drop in the range of 40 to 80 percent during the lockdown. I also think it might impinge innovation for a while, as startups are forced to survive on their own without any intervention. A lot of them are now focussing on what will help them survive and pay bills for now; for example: getting involved in the supply chain in whichever way possible, or anything related to COVID-19: masks, hand sanitisers, etc.
YS: Which core sectors are impacted, and what will be their exit strategy?
AS: Everything is impacted, and sectors which could have been less impacted, had their supply chain and logistics disrupted. The lucky few who sat in edtech, telemedicine, and content, that were the stepchild of the funding world up until now, have suddenly become the cool kids. Otherwise, most of them are seeing their revenues shrivel. The unluckiest by far is the travel sector, which includes industry stalwarts and rising stars like Airbnb, OYO, Ola, etc. The great thing about the startup industry is that it has a strong survival instinct. Startups in the retail sector that are affected are pivoting now towards models such as grocery home delivery, teleconsultations, or online classes.
YS: What can startups learn from this pandemic, and bring in to grow in the post-COVID-19 world?
AS: There are some key learnings that startups can take during this downturn:
- The important metric is not the amount of money raised, but how wisely it is spent. There seems to have been this odd race defined by money raised which will now hopefully be defined by real business metrics. Maybe, we will be able to celebrate and cheer businesses that grew wisely.
- Constant noise and being busy doesn’t always mean positive growth. It is okay to have had this period of being still, and looking internally as a unit to see what can be improved. I mean this on a company level, but it can work for individuals as well.
- Anyone who has been at this breakpoint can relate to this – when you are absolutely knocked out and there seemed no hope, you still rose, made it through, and succeeded. This realisation that sets in, that no matter what it is, you will make it through, then no one circumstance will define you.
YS: What will it take for startups to revive?
AS: I’ve been a part of the startup community for over 11 years now, and continue to help foster in whichever way I can. If you ever want to hear an optimistic scenario in our country, talk about innovation and growth to any startup.
In this low time, most startups will tell you something cool they have learned, or hacked at this time. We are all in uncharted territory. Rather than revive, let’s talk about what is it going to take for all, or most startups to survive.
Since startups are a growing force, living on little or minimal cash, some quick basic grants or loans by the Indian government would have helped in this hour of need to tide them through the crisis, especially for the smaller ones, who are yet to get fundings.
The government had announced at Startup India a Rs 10,000 crore package, with Rs 500 crore carved out for women entrepreneurs. Now is the time, if possible, to use some of that cash efficiently and quickly breathe life into an industry that fuels tech innovation for the country. In general, the startup industry as a whole, at this point, should look to survive, revive, and then thrive.
YS: What is the impact on investment for early-stage startups? How will it impact their growth?
AS: That is a tough one. Investors are saying that they are still open for business. However, everyone is super cautious and is waiting to see what happens post the lockdown – whether there will be a second wave or another lockdown.
The good news is that there has been news about funding rounds happening. Personally, I’ve always been a fan of businesses built like traditional businesses. I ran MyDala that way, and now when we look at a company that’s what we like to see.
Traditional businesses worked towards profitability that leads to a solid foundation, and then they went out and raised fundings likely in the public markets.
In the case of startups, it was slightly different – we raised money and then grew. Right now, I think we’ll see a lot of startups will think about surviving and growing on their own, or at least being mindful of the visibility on self-sufficiency, rather than relying on funding for growth.
It’s a reality check and a harsh one also. But I think it was needed, as many startups were looking at outside money to grow revenues, and other metrics were viewed favourably by investors; and at the end of the day, this needed to be corrected. Unfortunately, this correction is a brutal one.
YS: What is your view of the Indian startup ecosystem?
AS: We are now graduating towards being an actual ecosystem. COVID-19 has helped us all bond together as a true ecosystem. It’s heartening to see the startup community coming together to work with one another – learning from each other, and seeing if the team from one, can be absorbed by another.
I believe we will now start seeing some solid innovation. It’s under intense pressure that diamonds are formed, and we’ll see more and more of that happening in the near future. Investors too, will be open to looking at more things rather than chasing trends, and will also question the viability, which I think is a great thing for any startup to know and figure out for themselves.
YS: Are there some shifts that startups need to consider in their business models? What will those be?
AS: I think startups will now run as they should have, but with a strict focus on breaking-even and profitability. We’ll no longer be raising funds after funds to make a business grow forcibly without knowing the real market viability. Startups will have to be more agile and innovative than ever before because money for a little time will be scarce.
Sectors and startups that had a hard time proving their worth by being completely online such as online education, online meetings, online gaming/entertainment, etc., are now going to get their moment in the spotlight.
Other sectors may have to modify their business plans to consider manufacturing locally, especially the ones dependent on China, or use pay now, and shipping to a later model. Every startup is adding enhancements to their models with some online factor which acts as a value add — for example, beauty startups are conducting makeup classes, food startups are making cooking-related content.
YS: Are you seeing increased biases against women entrepreneurs during this time?
AS: We are actively looking and hoping to back some great women-led startups in the near future. As far as an increase in biases, I think its too early to tell. But personally, I don’t believe there will be a further negative impact.
However, I’m on this side of the table, with a mission to change things. So, I might not be the best person to answer this. Although, I’m optimistic about women-led startups’ survival in these hard times.
Overall, women-run startups, specifically in India, are already used to being frugal, having run the business with limited or no funds. They broadly tend to be conservative on spending more than the business can afford, which at this time should hold them in good stead.
My favourite question is asking what’s your best learning from this knockout punch. And so far, the answers I’m getting tells me that these fighters are already back up punching right back, learning new tactics to make it through this fight. I love it.
YS: What advice do you give to startups at this time?
AS: I’m sure everyone is quite tired of all the advice, especially the one about – the next few months are going to be the toughest.
Startups get it, and they are living it. My only advice is to keep up with optimism – it will take you a long way. There is a silver lining, and we need to look at it. We’ve all been harping away about India’s population being an opportunity, but the fact is only a limited subset of the startups are online.
Class of 2020, I’m sorry I know most of you weren’t even up for graduation, and you’re being forced into the harshest reality. But know this, you haven’t come this far to quit. You can do this. It’s ok to have dark days and wonder about survival. You aren’t the only one. We’ve all got some aspect of that going on or something else, that we are up against.
Right now, it’s a time for baby steps — focus on survival, then stability, and what else can you do to grow, and then leash out. But, it’s ok to focus only on surviving, focussing on cash break-even, and then profitability.
Investors will ask you what have you got to show for this lockdown, and it would be great if there is a solid response like — I have some battle scars, but we not only survived, we thrived.
When the dust settles, we’ll see numbers coming out on how a major transitional shift has happened from offline to online. Being a tech startup, who by the end of 2020 would have learned to be extremely agile and survive, will be better poised in every way to take advantage of this shift.
I know that in dark days there doesn’t seem to be an end, and these are numbing days, but it will get better soon.
In 2010, at MyDala, we lost our to-be investors four days before the money transfer was supposed to happen, because they thought there was too much competition, and hence changed their minds. It nearly broke us. We had expanded our business based on their feedback over the four months prior, and had no money to continue.
We somehow kept moving with the entire team taking deferred or basic salaries. We innovated and got great investors who showed us what we needed to do, and ended up growing from nine to 180 cities.
It’s like once you’ve jumped off a cliff, you know no matter what, you can do it again. COVID-19 is your cliff, and once you jump this, although any next jump (hindrance) will be frightening, you know you will be able to do it.
While startups prepare to survive and thrive during this time, YourStory Education is hosting a panel on May 25 at 3 pm – What investors look for when the future is uncertain? The panel moderated by Shradha Sharma, Founder and CEO, YourStory, along with Alok Goyal, Partner, Stellaris Venture Partners; Rutvik Doshi, Managing Director, Inventus Capital India; and Prayank Swaroop, Partner, Accel Partners; will decipher what investors look for, and expect from startups in times like these. Click here to join.
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