Startup Street: Top VCs Have Tips For Entrepreneurs During Covid-19 Crisis

This week on Startup Street, some of the top investors in India’s startup ecosystem have listed the best practices for founders amid the Covid-19 pandemic. An early-stage startup from Hyderabad has developed a low-cost ventilator. And a new report shows how startup funding has dried up due to coronavirus. Here’s what went on:

Tiding Over Tough Times

The Covid-19 pandemic has upended the global economy. As countries scurry to fight the unprecedented outbreak with complete lockdowns, businesses have been stalled, global trade has been thwarted and supply chains have been disrupted.

These times could be anxious for startup founders, particularly for those still in early stages. From once worrying about innovation and scaling up, they now stare at an existential crisis about business continuity while counting their remaining pennies.

To help India’s startup founders tide over this uncertain period, a group of top venture capitalists and private equity firms have listed some best practices to undertake in the wake of the Covid-19 pandemic.

The publicly available document has been jointly authored by Accel, Bessemer Venture Partners, Chiratae Ventures, Kalaari Capital, Lightspeed, Matrix Partners India, Nexus Venture Partners, Omidyar Network India, SAIF Partners and Sequoia Capital India.

“Founders will inevitably be faced with difficult decisions, tactically on execution for the next 21-30 days, and strategically on how to plan for the next 12-18 months,” the document says. “While nobody has all the answers, we hope this will help answer some questions and provide founders with a framework on how to approach the challenges ahead.”

Here are some of the tips:

Be Patient, Funds Will Be Hard To Come By

It will be very difficult to raise funds in the next three months and possibly longer, the document says. Even positive fundraising outcomes will take longer than usual in these circumstances.

The goal for a startup right now should be to have 12-18 months before they run out of cash. Besides, valuations will be reset due to the increased macroeconomic risk. “Many investors will move away from thinking about ‘growth at all costs’ to ‘reasonable growth with a path to profitability’. Adjust your business plan and messaging accordingly.”

A “flat round” of funding that may extend a startups runway for another 12 months should be considered a good option, it said.

Plan, Plan, Plan

Adaptability will be key to a startup’s survival. “Be prepared for the worst; then readjust if the situation improves faster,” the VCs suggest.

The document says that startups should assume that all of these three things will happen: receivables will get delayed, customers will ask for price cuts on services they’ve already consumed and contracts will not close at the last minute.

The VCs say communication with the team will be key in realigning goals. Startups should consider holding weekly meetings to discuss cash burn and runway with the core team. For most startups, the priorities should be employee safety, business continuity and liquidity.

Sequoia has a useful matrix for planning scenarios here.

Assess Risks And Work Around Them

The VCs suggest that founders should have someone in the team focusing exclusively on risk management. For younger startups, this can be done with the help of their investors and mentors.

“The major objective of risk management is to create a framework that allows the company to be proactive rather than reactive while assessing the macroeconomics trends in the market,” the document says. “While assessing impact, go one layer deeper and see if your customers and the sectors that they operate in are getting affected.”

Some of the systemic risks that the VCs want startups to lookout for include:

• Exchange rates
• Risk from public markets
• Supply chain disruptions
• Over-dependency on capital sources
• Cybersecurity

Besides these, the venture capitalists suggest redesigning business processes by allowing teams to work remotely and keeping engagement levels high. Startup founders should also not have unrealistic expectations from the team in these times. Clear communication and transparency with employees and external stakeholders is an absolute must.

The investors remain bullish on the long-term outlook for India’s startup ecosystem beyond the temporary disruption from Covid-19. “We believe in our founders and teams, and wish everyone the best in navigating through this extremely turbulent and stressful time. This too shall pass and we hope you emerge from this crisis stronger than ever before.”

The full document for Best Practices can be accessed here.

IIT-Incubated Startup Develops Low-Cost Ventilator

Aerobiosys Innovations, a startup incubated at IIT Hyderabad's Center for Healthcare Entrepreneurship, said it has developed a low-cost, portable emergency-use ventilator.

The device, Jeevan Lite, offers protection to health care providers as well as it’s Internet of Things-enabled and can be operated through a phone app.

It can also be battery-operated, enabling its deployment in areas without assured power supply, the institute said in a statement. The Minimal Viable Product with the required functionality of this ventilator has already been developed.

Aerobiosys Innovations aims to produce at least 50 to 70 units per day through collaboration with an industrial partner.

Funding Dries Up Amid Covid-19

Startup funding in India declined in March as investors hold back financing plans due to the economic fallout of the Covid-19 pandemic.

The value of deals across angel investors, seed investors and venture capitalists has dropped 6.91 percent to in the January-March quarter compared to last year, according to a report by financial data repository VCCEdge. The quantum of deals, too, have fallen 8.4 percent over last year during the same period.

“India is not likely to remain decoupled from the global economic slowdown, and uncertainty is evident among VCs and startups on what the future holds post coronavirus,” Sahaj Kumar, Research Head at VCCEdge said in a media statement. “International travelling restrictions has also put a halt on fundraising activities as China is one of the biggest sources of funds for the Indian startup ecosystem.”

The quarter saw 93 venture capital deals worth $1.85 billion—a five-year-low, according to VCCEdge. Angel and seed funding saw 136 deals worth $131.2 million.

The largest early-stage funding during the quarter was by InterviewBit. The startup raised $20 million from investors including Sequoia, Tiger Global and GFC Global Founders Capital.

With PTI inputs.