These are tough times for businesses of all sizes, and especially startups for whom it could take six to nine months to get things back on track. Cash flows will be tight and they may also experience delay in the investment cycle, but this is a temporary phase, says Bhaskar Majumdar, managing partner, Unicorn India Ventures (UIV), a Mumbai-based fund house. “Overall, digital businesses will get a fillip,” he tells Sudhir Chowdhary as he shares his understanding on the Covid-19 impact on startups and how they can get VC funding in these turbulent times. Excerpts:
How has Covid-19 changed the startup investment climate?
The outbreak has brought about a shift in the way businesses function, consumers behave and economies grow. On the investment climate front, investors have already started changing their strategy. We would be more interested in evaluating business models which are digitising current processes focused on problem areas like supply chain, affordable medical services, fintech, e-gaming/e-sports, government technology. Other investors would also look at business ideas where technology is being used to take an existing business from ‘hi-touch to hi-tech’, what is referred to as ‘social distancing tech’. Going forward, we will see less face-to-face interaction, few people in public events and a paradigm shift in the way we live our lives and interact.
What business metrics UIV is paying attention now?
We hope to continue our track record of identifying innovative business models with faster scalability. We recently reached first close at $12 million of our Fund II which was announced last year. The total fund size is Rs 400 crore and it saw participation from family offices and investors from first fund.
The metrics is that there should be a clear path to profitability for the companies. We are staying away from businesses that need constant capital to keep the growth engine going in terms of customer acquisition. Our focus has always been on B2B SaaS and on B2B digital platforms.
What kind of companies will VCs now look at to invest in?
The job of VCs is to invest and there is enough dry powder in the ecosystem. However, VCs will take longer to close deals, there will a slump in valuations and smaller deal sizes will happen, especially in the early stages. Sectors like healthcare, pharma, cyber security, fitness, edutech, etc., will see significant growth amidst the crisis as enterprises will look for platforms which can digitise interaction. The digitalisation thread will run right across sectors and collaborative platforms which enable distributed working will be in vogue.
What support strategies has UIV implemented so far?
We have had detailed discussions with our portfolio to understand their issues and the support they expect from us. Additionally, we have asked them to conserve cash, cut down all non-essential expenses, delay new product roll-outs, focus on increasing the runway and aggressively collect outstanding payments owed to them.
The government should look at measures like relaxing GST inflows and outflows for startups. The UK government has given 2,50,000 pounds to all SMEs and are encouraging banks to extend loans without promoter guarantee. Something like this can also be done in India.
What measures should startups adopt to weather this storm?
First and foremost, limit your burn and preserve the cash that you have raised to see you through these times. Startups may consider slashing management salaries or even a uniform salary cut across the board, or working on a four-day workweek that will save 20% salary costs. This may limit layoffs, at least in the short term.
Startups should take a relook at existing business roles, as remote working is the only option during the lockdown. For example, role of head of talent can be shifted to head of remote experience. Startups need to adapt their core business models to the current situation.