16 April 2020
Survival tips for Indian Startups from Top VC firms

    With the coronavirus pandemic impacting businesses on a global scale, the Indian Startup ecosystem has now found itself under extreme duress. There are now two contrasting sides of a single picture. Many reputed Indian startups have been reported to exercise extreme measures such as layoffs and wage cuts to prevent drying up of capital. On the other hand, innovators are coming up with solutions to combat this global pandemic. They are utilising the situation at hand to generate income for their startups. In retrospect, this is a trying time for Indian startup businesses- especially for those catering to sectors like travel and transport.

    This article here will provide an insight into what is being done and what the future course of action will be for the startups.

    A coping mechanism for startups

    With the global economy facing a potential meltdown, businesses across the world have been totalled- thanks to a complete lockdown being announced by nations worldwide, including India. Supply chains have been rattled down to the core, and trading has been impeded.

    For startup creators and heads, it is not reassuring news. Especially those who are still in their nascent stages, the current situation is very grim. The focus of these startups has shifted from earning big bucks to contemplating the fact that funds will run dry very soon.

    A letter has been forwarded to our Finance Minister, Mrs Nirmala Sitharaman, pleading the Government to initiate “bail-out” measures for startups facing potential extinction. Top venture capital firms like Bessemer Capital, Kalaari Capital, Lightspeed, Matrix Partners and SAIF Partners have co-signed this letter as a request to protect those startups which will be running out of funds very soon.

    Overall, in this desperate situation, startup founders have to draw out tactics and chart plans to survive the next financial year. Unless the business has saved up enough funds to survive or is generating revenue from the current situation, the economic meltdown will leave no survivors.

    Tips to tide over the current situation

    Here are some of the tips, coming from the top-bracket VC firms and associates, which will help the founders assess their situation and chart survival plans.

      Scarcity of capital funds

    Funds will be difficult to obtain for the next three months or even more, depending on businesses returning to normalcy post-lockdown. Even if there is a positive response for a fundraiser, expect longer-than-usual waiting periods before capital funds pour in.

    Startups should chart a 12-month or an 18-month long survival plan before they run out of funds keeping in mind the following points.

  •    Expect partnership valuations to be reassessed due to increased investment risk.
  •    The focus of investors has shifted from mass profitability to assessment of reasonable profitability from viable sectors.

  • Founders are being advised to explore the option of a “flat round” of investment that will keep them up and running for the next 12 months.

      Intensive adaptability and planning process

    Adaptability will be the key factor to overcome this desperate situation. It is high time that the founders reassess their situation and focus on either saving up for what awaits or venturing for an alternative revenue stream that will prove to be viable even through this period.

    Startups can expect three keys to happen during this period :

  •    Due to disruption in supply chain and trade, receivables will be delayed.
  •    There will be an increased demand for price cuts among consumers.
  •    Contracts will be reassessed extensively before finalisation takes place.

  • VCs suggest that extensive communication of the founders with their management team will be necessary to assess and shift goals. Weekly meetings and daily updates from the team to discuss cash burn and survival probability will be necessary to chart out a plan.

      Risk assessment and management

    VCs advise that founders should allocate some members of the core team to a dedicated risk management team who will have access to all details regarding capital and incoming funds. For startups in their nascent stage, they can closely work with their investors or guides. After all, the waves are choppy and startups need a seasoned captain to make sure they sail through.

    The major priority of the risk management team is to come up with a stable framework that will enable the company to trudge through, rather than back off after assessing the potential macroeconomic risk. In layman’s terms, the risk management team should work exhaustively to buff out the dent created by the economic impact.

    Some of the points that the risk management team should focus on includes :

  •    Public market risk
  •    Dependency on capital funds
  •    Supply chain and trade disruption
  •    Cyber-security
  •    Exchange rates and current monetary valuation

  • Conclusion

    Startups need a systemic rejuvenation of the business model they used to operate on. With proper communication, management and planning- startups would be able to manage to survive through this crisis and come out stronger than ever. As the saying goes, “This too shall pass”.

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