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Dr. Srikanth Sundararajan

The author is General Partner at Ventureast, Ventureast Capital Advisors. Srikanth has been an angel and VC investor for 10+ years in India, and 2 years in the US.

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How Can Startups Survive COVID-19? A VC Perspective

Whatever the outcome, the uncertainties and new realities of the world post-COVID will coerce some companies to re-think their business models to accommodate the changes in consumer behavior.

The uncertainty resulting from the nationwide lockdown has impacted businesses across the country and forced them to adopt many types of contingency plans. Small and medium sized businesses (SMBs) are bearing the brunt of this lockdown. Large corporations may have sufficient liquidity to weather the crisis, though not all. Some businesses in highly impacted sectors like Aviation, Automotive, Real Estate, Tourism & Hospitality, have also seen complete impact on revenues this quarter, forcing them to take extreme measures such as laying off employees, wage cuts, deferred salaries and shutting down some business lines and offices. Whatever the outcome, the uncertainties and new realities of the world post-COVID will coerce some companies to re-think their business models to accommodate the changes in consumer behavior.

Capital Preservation

The environment pre-COVID was one where capital was available. Early-stage B2C companies were spending significant amounts of investor money acquiring customers and meeting hyper growth targets. Similarly, in the growth-stages, a large portion of B2C companies had a leeway to spend money to expand outside of their core focus area to acquire more customers. As we enter a new and more cautious environment for investments, this behaviour will be seeing change. We see investors holding off on investments, and the valuations undergoing a correction. At the moment, saving cash and keeping afloat is top priority for all companies big or small, mainly due to the uncertainty caused by the virus in terms of time constraints. We anticipate spending being reduced, and consumers’ focus being safety and health. This has a negative impact on overall consumption, due to which B2C companies are taking and will continue to take a major hit on revenues. With fixed and variable expenses greater than revenues in the near-term, SMBs are burning significant amounts of cash. Taking into account the long-term impact of an upcoming recession coupled with the virus, businesses should make a conservative estimate of their runway and try to extend it as far as possible by cutting costs and conserving cash.

Cash still being ‘king’, preserving cash for this period is crucial for several reasons. While most investors honour deals, some may pull back for the right reasons. Furthermore, the market for investments has also transformed dramatically. Valuations are down significantly so raising money by any business will become increasingly difficult. Even for companies operating in sectors with high demand (such as health care), investors will be more cautious, especially if they are early stage and if product-market fit has not yet been established.

So how do businesses apply principles of cost cutting into practice? To cut costs, companies can reduce offline marketing expenses, freeze hiring and implement salary cuts if required. Cash flows can be managed by utilising the RBI loan moratorium, delaying payments to vendors, borrowing

against receivables and trying to raise bridge capital wherever possible. On the bright side, the paucity of cash will force companies to focus on evolving their core business model. Not only will this approach allow them to weather the economic impact of the virus, but it will bring back a focus on profits over revenue growth which might lead to more sustainable business models coming out of the crisis. This transition and recalibration of mindset might be a tough adjustment for employees and entrepreneurs who were focused on revenues, not margins; they have to all get to a zero state spend or positive margins by cutting costs to the bone!

Portfolio Companies and Pivoting:

Several startup firms in various sectors are changing their business proposition and the way they offer value to different customer groups during this crisis. Some of Ventureast’s portfolio companies have repurposed their organization to quickly address the changing consumer behavior and necessities.

Boonbox is leveraging its last mile network to provide rural areas with a continuous supply of medicines, FMCG goods (baby food, milk powder, biscuits, etc), sanitation products (sanitary napkins, disinfectants, diapers, gloves, masks, etc) and groceries (rice, wheat, pulses, sugar, salt, etc). It is working with the Deshpande Foundation to provide essential commodities/products in North Karnataka. To combat the COVID situation, the company is sourcing its products directly from the local stores, brands and essentials providers. The Company plans to expand the Essential Commodities/Products offering to the entire state of Karnataka, Orissa and Tamil Nadu. Broken supply chains and lack of product availability are challenges to its operation, but Boonbox is eclipsing these headwinds through effective route mapping and optimization in remote areas.

ekincare, a Hyderabad-based corporate health benefits start-up, is providing telemedicine services to employees of more than 600 companies and their dependents. Several firms including Unilever, eBay, Nike, Kotak Mahindra, Grofers, Faasos, XOXOday, and Byjus have actively come forward to help their employees fight the coronavirus through ekincare’s 24×7 online doctor consultations. ekincare has doctors on their own payroll. This has ensured an exceptional employee experience during their online consultations and a 20 second response time to any health query on the platform. Using the tech-driven ekincare platform, doctors get access to an individual’s health history once connected, making the consultation very apt and to-the-point. With end-to-end integration with other health services, doctors are able to give prescriptions as per the new telemedicine guidelines, for COVID tests or medications.

Covid-19 has expanded the market especially for home healthcare providers, enabling them to provide both at-home healthcare and remote healthcare, apart from reaching out to corporates. Portea Medical, was quick to address this fundamental change in customer behavior, along with online tele-consultanation services, quarantine management of different lifestyle diseases and

managing low intensity COVID 19 cases at home. Patients avoiding visits to specialized-facilities unless deemed crucial, has prompted the firm to launch its Chemotherapy at Home services in Delhi, Bengaluru, Mumbai, Chennai, Hyderabad and Kolkata. The service is intended to benefit people with cancer who have been undergoing chemotherapy at hospitals and are at a higher risk of developing infections in light of COVID-19. This provides them a comfortable environment to receive treatment without increasing their worries of infection.

Start-ups will have to reboot and adapt to the changing norms to weather the storm. While the pandemic has disrupted several businesses, it has also opened up opportunities for few. For instance, Digital healthcare is on the rise, as demand for telemedicine increased 100% during the lockdown, with 50% new doctors listed. Further, the education sector witnessed a massive shift towards virtual classrooms and personalised learning enabled through technology. In terms of customer engagement (time spent), even the online media, entertainment and gaming sector saw a greater than 60% hike. For businesses to survive, it is imperative for them to track expenses against their revenues, plan ahead for 6 to 9 months, be patient with potential investors and communicate well with customers and existing stakeholders. They should think about locking in existing customers and offering value to new customers with possibly different characteristics as a key to success. A crisis brings to fore good management practices and fair stakeholder treatment. In a situation like this, quick decision making, while being transparent and fair will go a long way in shaping the business. Communicating frequently with employees, investors, customers, suppliers, the board frequently, this helps tremendously in a down environment!

In a lock down environment where employees, customers, suppliers, distributors are all constrained, fully digital businesses will be able to manage better. Good examples are some B2B SaaS plays like our own Moengage and Edge Networks, and others like Whatfix, and Darwin Box. Pure tech plays that are focused on horizontal tech or focused tech would also be able to manage, as these days most work is capable of being done online including customer and sales interactions. Businesses that will see impact would be traditional businesses which are dependent on employees for operations, or a combination of these, for example Swiggy and Zomato have these elements and this has certainly slowed their growth.

The good news is the Government of India is slowly opening up locked down businesses and some of the B2C companies and other companies with tech and operations components are seeing growth, but focus should still be on costs and getting a cushion from investors. The other good news for us is with technology like 5G around the corner and processing speed of processors, you will see great growth in robotics as applied to various fields, but specifically to healthcare, manufacturing, defense, warehouse management, etc. AR/VR is another area which will see growth especially in the area of online entertainment/gaming and health tech, ed tech and other segments. While the job situation is bleak, there is an old saying which goes, “When one door closes, several others do open up”. This is also an excellent opportunity for online upskilling/reskilling companies to offer courses and training to potential employees, and current employees who may have been laid off. As usual we are cautiously optimistic, but confident that

companies focused on their core business, customers, and employees will last through this tough period.

As investors we are seeing some heartening changes, very cool fundamental tech has become the focus and many startups and institutes like IISc, IITs, BITs, NITs and other leading private and public colleges have been working on some real cool products that may be applicable worldwide. We personally are thrilled, as traditional ways of manufacturing, healthcare, hospitality, education, agriculture, finance are going to be disrupted in a big way, and guess what, create newer opportunities for all!

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house


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