As we realize that the entire world is experiencing a bad time because of the CoronaVirus, the weight of the recession is heavier on the businesspeople than the weight of the pandemic, which is why they are dealing with fear over their survival.
So read on to stay clear of the slip-ups, make the best of the opportunities at hand, and pick the correct direction so that the company stays on the right route.
Siddharth Chopra is an experienced business consultant with a demonstrated history of working in financial services. He has completed his MBA in Finance and Financial Management Services from the Netaji Subhash Institute of Management Sciences and is skilled in equity research, financial modeling, corporate finance, investment banking, and value investing.
“The months ahead will probably be quite volatile and dynamic. Portfolio startups we are working with, can better manage resources with a very clear focus, first and foremost important thing is safeguarding employees health and make sure they are connected, support customers and de-risk financial exposure in the phase of contraction of business, this can be done by stabilizing the operations, adjusting and preserving liquidity as well as managing payables for a runway of another 4-6 months,” he says.
Remote staff support should be adequate and specific actions are needed to keep the business operating, for instance, supply chain stabilization, which has seen large disruption.
Companies and startups that depend extensively on import led tech, are more vulnerable since dollar and the inflation rate will be hitting hard on China and India, so importing cost of components and tech are putting stress on financials, such a case is with one of our portfolio startups in electric vehicle whereas, they are importing body invite components (40%) from China to achieve economies of scale, as a result, localizing products is their short-term change in work strategy.
“Another case of an insurance startup we are working with, have made a short-term change in their strategy to align with market sentiments whereby they have shifted focus to group health insurance and fire policies for SMEs, retail health, shopkeeper policy and critical illness policy for tier-2 cities, and so they can return their business to scale with more insurance products to offers. One more case of a last mile delivery startup which has now focused more on inside sales and reaching out to more customers and on-boarding new available suppliers by creating a temporary B2C tech platform and developments is being closely monitored,” he says.
Address the immediate challenges
According to Siddharth, startups need to think and act across different horizons;
- They have to address the immediate challenges with their employees, customers, technology and business partners
- They have to address the near-term cash management challenges, re-assess the business plan, cap fixed and variable expenses and play a vital role for the next 6 Months
- Projecting different scenarios and the allocation of cash runway efficiently as the business will get impacted by new sales figures, receivables will get delayed, credit cycle and there might be a potential for bad debts during the lockdown period
- Create a detailed plan to return the business to scale quickly as the situation evolves and be clear about how the regulatory and competitive environment in the industry may shift in particular sectors.
As the COVID-19 continues its disruption, the livelihood of many entrepreneurs and small business owners has been threatened. According to a recent survey, 50% of business owners that were surveyed said they didn’t think they could continue business operations for more than three months. Approx 30% of businesses expect the virus to have a moderate to high impact on their revenue and supply chain.
“So, for startups, the priorities should be employee safety, business continuity, and liquidity. COVID–19 is an unprecedented event that is leaving a deep impact on the overall mental health across all levels of employees. Uncertainty and lack of control have given rise to high levels of anxiety. In times of crisis, however, the focus must shift to surviving the lean times than finding new market opportunities,” he says. With entrepreneurs working remotely, implement a remote work structure that covers the deliverables each team member is responsible for completing since communication with the team will be key in realigning goals.
“Plan for the short and long term as the spread will create a ripple effect that will impact us for some time. Speak to your suppliers, investors, partners and local officials on a daily basis as startups run exceptionally lean and generally on fairly tight timelines. Startups should consider holding weekly meetings to discuss cash burn and runway with the core team. Companies that were in the process of raising new money, are likely to be hit especially hard so rationalize the expectations,” he says.
Siddharth finds the Action COVID19 Team (ACT) initiative to be a great one. With the number of cases of coronavirus is increasing daily in India, the initiative is to build collective effort in helping fight the long-term effects of this pandemic on society.
“Action COVID19 Team (ACT) will not only provide a grant to the startups which are working on the critical pain points such as inhibit spread, disease testing, and management, medical devices, healthcare support to hospitals and doctors, but ACT team will also bring its networks, resources, mentoring to startup founders and team to help these initiatives make rapid progress and create a large-scale impact in the fight against COVID-19,” he says.
There will be great economic dislocation
In the past few years, investment activity has been touching record highs and had grown 28 percent to $48 billion in 2019. The majority of the VC’s and seed funds are continuing, though at a slower pace, to evaluate the investment proposals and continue to be active. “The focus has shifted partially towards focusing on existing portfolio companies for crisis management. While there will be great economic dislocation that affects small and large businesses, there are still some opportunities, especially for direct-to-consumer businesses,” he says.
Few sectors which are best to invest
“Sectors that may attract investments are companies in the technology, consumer goods (packaged essentials, personal and healthcare, food processing, hygiene products, and Sanitation), pharmaceuticals as well as sub-sectors like medical supply and services (Telemedicine), biotech, health and fitness apps and entertainment like mobile gaming, which is witnessing a skyrocketing increase in user engagement and the season of gaming startups appears to be at its peak,” he says.
Some investors believe that by 2021, everything will be back to normal while some are expecting a longer-term impact somewhere between 18–24 months. Dry powder availability for VC investing in India was at an all-time high at the end of 2019, indicating likely continued investment activity in 2020.
“We may expect small rounds of funding at a lower valuation and a runway of 12 months should be considered appropriate in the present circumstances. Valuations will be squeezed due to the increased macroeconomic risk since investors will be conservative and not bullish on the potential growth, we can expect an adjustment and correction of Approx 25% on average to valuations across,” he says.
(Edited By Rabia Mistry)