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                                                                                             Startups, Founders and teams during/ Post COVID 19

In our previous blog on COVID 19, we had looked at the Investor side of the things during/ post COVID 19, we will now elaborate how founders are holding up and what should they do in these uncertain times.

During all these times, one thing that will be paramount to founders is to understand the prevailing sentiment. Fear and uncertainty can be felt in the atmosphere just by gauging the heaviness of the air. Changes in sentiment will be paramount in dictating the pace of market recovery and will shape the foreseeable future sentiment.

For founders, it is of utmost importance to track the sentiment and incorporate it in their strategy and decision making.

Some easy to understand quantitative sentiment factors are:

a) At what pace the government’s all around the world can get things under control. Founders can gauge this by tracking the basic statistics and statements, press releases etc by different responsible bodies.

b) Will there be a second wave of infections in the nations where the virus is under control for e.g. China. If there is a second wave, then how are the authorities managing it initially.

c) How quickly does scientific breakthroughs comes online and how effective and feasible these breakthroughs are.

Keeping these in mind. We would suggest founders who are looking to raise funds in these scenarios to pitch differently than how they would have pitched conventionally. Investors will expect the founders to be:

1) Be realistic & thoughtful: Investors will expect founders to incorporate the harsh short-term operating realities and their long-term expectations while keeping the pandemic’s impact in mind.

2) Present a longer budget & plan: Investors are now looking at longer term plans and are emphasizing on a more balanced approach between business health and growth expense.

3) Revise your go to markets assumptions: Markets are changing rapidly due to the pandemic, whether these changes will be permanent or short term is a different subject altogether. One thing which is certain is the short-term impact on the markets, due to rapidly changing daily human interactions. Founders who would come up with unique go to market strategy will be most in demand with the investors and will be able to optimise their fundraise.

4) Investor Empathy: Founders have it harder than investors, but investors are also facing the same scenarios as founders. Investors are going through the same exercise with their portfolio companies and are juggling their professional and personal lives while working from home. Recognizing this will help the founder to build a common ground with the investor and can help him spearhead this fundraise.

Majority of the founders are worried. Major factors behind this worried stance are:

1) Dwindling Revenue

2) Cash flow troubles

3) Managing the current crisis.

Massive lockdown all around the globe to control the contagion have crippled productivity and have created unique manpower challenges. These problems are significant hindrances for a startups growth, liquidity and operations.

Productivity and consumption have been curtailed due to the lockdown. We believe that it will take more than 15 months to get everything back on track.

Due to the problems faced by startups, founders are taking steps to ensure survivability of their startups by containing costs, hence extending their runways. These are:

1) Cutting down marketing spend        

2) Cutting office expenditure (overheads)

3) Salary restructuring     

4) Renegotiating contracts

Layoffs are not a top priority as of now for founders but are a harsh reality of recessions and massive layoffs may happen in sectors which face a direct effect of the pandemic. Majority of startups have also taken a very defensive stance on hiring and expansion plans. Some have slowed down and other have stopped hiring altogether. Expansion into new territories is also on hold for now due to cost containment.

Majority of the founders are also looking to either pivot their product or strategy to match the current economic environment. We believe that founders will have to on average, pivot their product or strategy moderately to ensure successful operations and fundraise in the current scenario. VC’s are looking at business models which are build around the current environment and incorporate the future changes in the way of doing business.

There is ton of money lying around with the investors and they will love to invest, just the bar is higher nowand the bar has never been this high. A founder must showcase:

1) Patience

2) Fair valuation

3) Smart allocation

A slowdown is also the best time for founders to focus on building out the product and assets. Due to fewer customer focused assignments, founders can focus more on long term initiatives and can build the winning product or strategy.

Among other economies, India specifically issavings and consumption led and this feature of the Indian economy will act as a cushion against the recession and will also be the major boost in the recovery afterwards. The extent of lockdown and control of the contagion will play an important role to determine the depth of the recession.

We believe that hospitality, travel & tourism, shared mobility, infrastructure and real estate are currently the most affected sectors.

Dot com bubble gave us Google, Yahoo and Ebay and Sub prime mortgage crisis gave us Whatsapp, AirBnb and Uber.

Great businesses which started in adversity, flourished in good times. On the same grounds we expect phenomenal startups to come out of HealthCare, EdTech, Fintech, Cloud based SaaS offerings, DeepTech and logistics.   

By: Ayush Dadhich & Manas Vashistha

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