Startups, Founders during COVID 19

Impact on Startups, and Founders during COVID 19 times

In our previous blog we had covered the investor’s perspective, where we gave some insight around the Investor thought process during these times. We will now dip in on the other side and understand how companies and Founders are holding up and what should they do in these uncertain times?

One thing which is of paramount importance for Founders is to understand the prevailing sentiment both from the market and the investor perspective.Some of the questions which are constantly surrounding us

- Where are we heading and is there any light at the end of the tunnel?

- How should we manage these times especially from revenue protection and cost reduction perspective?

- Is this the right time to approach investors or get in a discussion for the new round of funding?

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

Keeping these in mind. We would suggest founders who are looking to raise funds in these scenarios to pitch differently than what they would do 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 market 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 manpower challenges. These problems are a significant hindrance for a startups growth, liquidity and operations.

The productivity and consumption have been impacted due to the lockdown. This has in turn led to all related ancillary industries also getting significantly impacted. We believe that it will take more than 15 months to get everything back on track.

Due to problems faced by startups, founders are taking steps to ensure survivability of their startups by containing costs and, 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 if the situation gets prolongated. 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.

We believe that founders will have to pivot their product or strategy moderately to ensure a successful fundraise in 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 lot fund available with the investors and they will love to invest, just the bar is higher now. 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 is a savings 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.

Dot com bubble gave us Google, Yahoo and Ebay.

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.

Prepared by: Ayush Dadhich & Manas Vashistha

To know more visit www.instarto.com or contact at +919929527757

Stay Safe and keep reading. We’ll soon be out of these distressing times!