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Moneyball: TVS Capital’s Gopal Srinivasan On How The Pandemic Changes Things For The Economy

Moneyball: TVS Capital’s Gopal Srinivasan On How The Pandemic Changes Things For The Economy

A few sectors will bounce back faster, but some will take longer and will need massive changes, said Srinivasan

In its third fund, TVS Capital Funds has invested in companies like Go Digit General Insurance, Suryoday and Leap India

Srinivasan estimates that India will suffer a GDP loss of up to INR 4 Lakh Cr per week due to the pandemic

The high risk-high reward world of venture capital is an ever-shifting world where the future of business is predicted today. Inc42’s Moneyball is a series which focuses on the who’s who of the venture capital world, deconstructing the trends, how it works, why it works and what it feels like to be part of the world of venture funding. Explore other Moneyball stories here.

“Gratuitous startups which burn money for no real reason or solve real problems — they will be the first ones to perish,” — Gopal Srinivasan, the founder, chairman and managing director of TVS Capital Funds.

The Covid-19 pandemic has changed the face of business, and people have become more thoughtful about what they buy and where they spend their money, Srinivasan believes. “I hope the word startup will get redefined in the coming years to be applicable to small businesses.”

A passionate entrepreneur and an angel investor, Srinivasan is a third-generation member of the TVS Family and a big believer in the power of old-fashioned business sense. Founded in 2007, TVS Capital Funds believes in building sustainable businesses that are poised to define India’s growth story.

TVS Capital, a growth private equity firm with AUM of INR 1,600 Cr across 2 funds. The firm is currently investing out of its INR 1,300 Cr third fund, with a co-investment pool of INR 400 Cr. Few of its investments include Go Digit, Suryoday and Nykaa among others. It is backed by prominent financial institutions, family offices and high net worth individuals, many of whom have been associated with the firm since inception.

Edited Excerpts: 

Inc42: What do you think of the entire Covid-19 situation? How are your lockdown days going?

Gopal Srinivasan: The world is in a miserable position, we must help people in whatever way possible. These days I am working a lot, trying to strike the right balance between family, friends and helping others.

Inc42: What do you think about market readiness and VC mindset for FY20-21?

Gopal Srinivasan: There is no FY21. There is only, FY20 and there is FY22.

Inc42: What are people in the VC ecosystem talking about these days, based on your recent interaction with LPs, startups and founders?

Gopal Srinivasan: Right now, everyone is trying to do disease assessment — what will be the spread, the extent of the disease in India, will it be as bad as Italy, Spain, France and the US.

For instance, look at the mortality rate in the US. The country has one of the most sophisticated healthcare systems in the world. It is not even a comparison, but the country is having over 35K-45K cases per day, with mortality rates of 3%. Despite such healthcare facilities, out of 1.3 Mn tests, 70K people are dead due to Covid-19. It is hard to believe that death rates are higher than in many countries.

In India, how will this deadly virus play, we have no idea!

Given the state of medicine in the country and cases recorded, it looks like Covid-19 may not be as severe as compared to the rest of the world. At the same time, we are also sceptical about the whole situation. However, once we get more clarity on the data from the antibody-based tests, we will be able to assess the situation much better. That is on the health impact side.

From an economic impact, India’s GDP is at INR 180 Lakh Cr ($2.59 Tn). Mathematically, if we consider 52 weeks, i.e we have INR 3.5 Lakh Cr per week. If we consider 40% of the economy is affected because of Covid-19, we have INR 1.4 lakh Cr of GDP, which maybe is running at 30% capacity accounting for INR 40 to 60 Cr loss per week.

For instance, if this continues for 10-12 weeks, we will have a loss worth of INR 3.4 Lakh Cr to INR 4 Lakh Cr per week. Definitely, 3 Lakh Cr for sure, where 2% of the country’s GDP is gone. This is just a short level of disease impact.

In another case, if the virus continues till October 2020, or in the worst case, January 2021, we will definitely have scenario anywhere between 2% to -2% GDP growth, or perhaps -3% in the worst case. It is a very big loss for India.

Inc42: According to you, which sectors will be hit the hardest?

Gopal Srinivasan: Obviously, a few sectors will bounce back faster, but some will take longer, but those that will come back will be transformed completely.

For example, a lot of people are arguing about shared workspaces going extinct as work from home becomes convenient and efficient. Similarly, commercial real estate will also get impacted — if 20-30% choose to work from home, and companies will have to shrink their commercial offices.

Then your medium-term recovery could be movie theatres, travel, restaurants etc. Here, even after the recovery, people will be extremely cautious before making any plans as the disease is not going to go away in a day.

While some of the sectors can undergo long term recovery, some may go short term or medium, and we really can’t say anything at this point in time.

On the other hand, there are sectors which are getting accelerated thanks to Covid-19. For example, it includes cloud-based collaboration tools, task management, chat apps, video apps, computers at home and repair services among others.

In addition to this, many believe that 5G launch will also happen faster because of work from home scenarios. We really don’t know if that is true. But, we feel that internet services may recover in the short term as there is huge pressure on the telecom industry. Obviously, there is some correlation that is opposing each other.

Inc42: How are you and your portfolio preparing for the post Covid-19 world?

Gopal Srinivasan: As mentioned earlier, we have classified these businesses based on their ability to bounce back — be it short, mid and long term, and we have 80% of the fund to invest. Therefore, we want to align ourselves to the post Covid-19 realities in our investment.

Obviously, leveraging is going to come back slowly. Above all, we also feel investing in midsize businesses will be a problem.

However, for the post-coronavirus market, businesses need to be either small and agile, or large and bulletproof. In other words, either you are aegis class destroyer of America or you are an agile startup or SME that can keep reformatting the purposes with changing times.

At the same time, it may be a great time for business professionals to work from home because they are able to engage far more effectively, and most importantly, companies are trusting its employees to work from home as the infrastructure is already in place. This could be an added advantage.

Inc42: What about behavioural changes? Any new trends you would like to share?

Gopal Srinivasan: According to me, I feel, it will change and it won’t change. In fact, I have asked my team to study the early 20th-century Spanish flu pandemic, and we are curious to know what this will bring to the table.

I feel human behaviour is a collection of these stones. It is not a one day or a month’s journey. Prior to Covid-19, we had Bubonic plague, where the infection was mild, and later came the Spanish flu, by then we were all wearing masks, followed by SARS and H1N1 among others. Then the financial crisis also happened in 2008. These things will keep happening, as long as humanity exists.

Again, there will be short term, midterm and long term behavioural shifts.

For example, short term impact, everybody will be much more hygienic than before. India may become more hygienic in the next ten years. These are called the accelerated changes, and because of this, a bunch of other changes might actually take place in the future.

I am sure that the Covid-19 vaccine will be added in the vaccine file next year. 

However, I believe that certain good things that are happening around the world will get accelerated. I hope people will become more climate-friendly and will consider veganism as a way of life more openly because of all these animals which have got us into trouble in the first place.

Note: We at Inc42 take our ethics very seriously. More information about it can be found here.