VCs are currently focusing more on managing their existing portfolio of startups instead of making investments. The focus for startups is on conserving cash as most of the expenses are being diverted towards managing Covid-19 related expenses.
The catastrophic Coronavirus, which is resetting societies and triggering a change in people’s manners and morals, is perhaps acting as a window to new solutions and services to serve mankind. Businesses, which though existed before Covid-19 outbreak, may see a change in how markets and customers perceive and adopt their technologically-enabled solutions in a post Coronavirus world. This new areas of growth and opportunity have kept startup investors on standby to invest in them. Particularly early-stage venture capital funds are hopeful of a handful of ideas, reset by Covid-19 impact, to back them once the new normal set in.
For instance, telemedicine becoming the new normal for people to seek medical consultation over a call or video interaction. “Telemedicine will certainly see traction as cities and hospitals get increasingly crowded. This would now be an expected norm and we might see some investment happening there. Another interesting area would be drone-based solutions for sanitation, farm monitoring, delivery of certain goods etc. and to avoid human intervention provided government relaxes usage of drones. This solution will probably become long term,” Anil Joshi, Managing Partner, Unicorn India Ventures told Financial Express. The early-stage investor recently made the first close of its startup fund with target corpus Rs 400 crore.
The opportunities are also possible from the behavioural change perspective among people due to the current pandemic. For instance, wearing masks and washing hands. This could be similar to countries like Japan where wearing masks is normal while the reason for that might differ. “We are thinking if there can be a permanent behaviour change in something. It may sound vague but maybe wearing masks will become fashionable going forward. So, a startup designing and making comfortable masks will be interesting,” Gagan Goyal, Partner, India Quotient told Financial Express Online.
Among the segments, which have already seen some scale but not as much as e-commerce and foodtech, education will the key area for investors to bet on as digital learning and personalised coaching takes new form and shape in the current situation. For example, Byju’s has given students free access to its app till April end. In fact, it claimed a 150 per cent increase in the number of new students on its app after announcing free access in March 2020. Similarly, Toppr has made its live classes and video classes free for students in fifth to 12th grades. “Education has traditionally been slower to adopt tech industry but now it is rapidly undergoing changes,” Rutvik Doshi, Managing Director, Inventus India Advisors told Financial Express Online. The change in education because of technology has occurred as parents “have started paying for it seeing merit in the services of students learning from anywhere,” Joshi added.
Other areas of opportunities, according to investors, which might spring up from the post Covid-19 world, could be team collaboration tools that will help businesses cut their infrastructure and technology costs, helping MSMEs adopt online strategies to streamline their business operations and growth; and providing hyperlocal information on app or website, for example, grocery stores not just in a particular region in a city but around customer’s location. “Such things will later lead to a lot of opportunities but you cannot predict what that will be exactly,” said Doshi.
Investors like Naspers and Ascent Capital are also looking to invest in startups developing solutions to fight against Covid-19 by leveraging platforms from investment banks like Bexley Advisors. “Investment banks are facilitators of the flow of capital at their core. It is imperative that we deploy our skills at a time like this, where without stimulus, natural funding channels may freeze,” said Utkarsh Sinha, Managing Director, Bexley Advisors. Under its Covid-19 Action Fund (BACoAF) initiative, solutions from startups are shared with investors for investment. “We are working together closely on the BACoAF initiative and also offering our vast network to do our best to enable the solutions that fit best with our investment strategy,” Ajay Mittal, Partner and Director, Ascent Capital told Financial Express Online.
Funds, however, are currently focusing more on managing their existing portfolio of startups instead of making investments. The focus is on conserving cash as most of the expenses are being diverted towards managing Covid-19 related expenses including in supply chain, deliveries, procurement and more. “We are focusing on stretching our capital by at least next six-month months since our next round of fundraising, which we were supposed to close this month, is likely to take a few months more. This was in the middle of the entire due diligence process that the Coronavirus crisis emerged. We would have raised the amount had it been about signing the cheque after the diligence process,” a startup founder told Financial Express Online seeking anonymity.
Nonetheless, this doesn’t mean investors have paused or stopped investing in startups. They are open for business and are looking at new opportunities at early stages. “There is no specific reason to stop or pause as we invest with a horizon of seven-eight years and if you take that horizon, then it is not that investment will stop. Late-stage VCs may face a challenge because they look at 1-2.5 years horizon,” said Doshi. Due diligence, however, will take time and might cause delay to the early-stage investments. “Investments cannot stop because there is a portfolio approach and a particular number of startups has to be funded in a time frame. If I was supposed to do eight investments this year, I might only do five. So it will slow down but won’t go drastically down,” added Goyal.