Coronavirus and funding challenges for growth-stage startups
While some sectors are worse hit than others, it would be wise for all startups to preserve cash and be ready to re-craft business models if necessary; the post-coronavirus world will witness the rise of new market segments
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Governments are placing countries under complete lockdown. Travel has been suspended temporarily. Even food delivery and e-commerce services have been put on hold for the time being. The novel coronavirus (Covid-19) outbreak has wreaked havoc on the world’s economy. Several businesses have temporarily shut down. Supply chains and sales have been impacted to a large extent across sectors. For the country's startups, it poses yet another challenge, perhaps their biggest one to date: Securing funding in the strangulated financial ecosystem.
With the growth of the economy slowing, India, home to more than 50,000 start-ups, might take at least a few months to recover from the situation. Against this backdrop, start-ups, especially those in the growth stage, are at most risk of facing funding-related headwinds amid the pandemic-ridden investment landscape. Let’s take a look at some of the most prominent challenges.
In fact, leading Chinese investors had called India their most important market at TiE Global Summit 2019. It was also the year when Chinese companies had invested $3.9 billion in Indian startups. However, although China is already on a path to recovery, it is unlikely that investors from China and other south-east Asian countries will be eager to pump funds in the pandemic-hit market landscape. This can translate into a tangible blow to the funding machinery for enabling budding and growth-stage start-ups in India.
Although governments across the world are endeavouring to contain the spread of the virus, it will take a few months at least before the global situation regains its erstwhile equilibrium. On the other hand, the global market is also expected to undergo major paradigm shifts once the pandemic blows over.
All startups would be wise to do two fundamental things. First, in the absence of certainty on revenues, they must preserve cash at all costs so that they can survive this phase and be ready to get going as soon as the curtain lifts. Secondly, they must be ready to go back to the drawing board to recraft their business models and maybe even the sectors they are in. One start up, for instance, has shifted gears in a matter of weeks and is getting ready to manufacture ventilators for hospitals to deal with Covid-19.
The transformations will be driven by a new awareness of the criticality of sectors such as healthcare and logistics that are currently sustaining our society under quarantine. Hence, the post-coronavirus world will witness the rise of new market segments and newer opportunities that innovators can seize to not only make the world whole again but also drive it towards a healthier future.
The writer is chairman of the Indian Angel Network