The New Buzzwords For Investments In The Post-Covid World: Edtech, Entertainment, Gaming & More

While there had been talks of a funding winter in the Indian startup ecosystem long before Covid-19 came in, the pandemic has brought in a funding crunch unlike any other. In the face of this unprecedented crisis, which many have called a black swan moment, the ecosystem experts have advised businesses to stretch their runway and prepare for rough times over the next 18-24 months. 

And the impact of this is already visible. According to DataLabs by Inc42, the Indian startup funding has dropped by 45% in Q1 2020 vs Q4 2019. As per a 100X.VC survey, the VC firms and investors are worried and trudging carefully with selective new investments in some sectors that are still promising.

In a webinar with a diverse panel of VCs from across the globe, Inc42 delved into how investors are re-evaluating their India investment thesis for FY20-21 and what founders can take away from it. The session was moderated by Sanjay Mehta, founder, 100X.VC, and featured hosted Dirk Van Quaquebeke, managing partner, BEENEXT; Priya Banerjee, principal at B Capital Group; Benny Chen, managing partner, BAce Capital; and Ed Roman, managing director, Hack VC. 

Investor Outlook For India In 2020

While panellists admit to being taken aback by the impact, they largely remained bullish about the long-term prospects for startups in the Indian market. Chen from BAce Capital said that the firm has a mandate of investing in India, but is being cautious given the impact of the crisis on macroeconomic growth. He noted that people’s mindset or way of consumption may change largely, even post Covid-19 but there is no visibility yet.

“China is showing resilience in segments except for exports..so not sure what India will show,” – BAce Capital’s Benny Chen.

Hack VC’s Roman noted that essentially many VC firms had to become internally focused and help portfolios succeed. He noted that this had a profound impact on the startup ecosystem as only a few VCs are making new investments, while others face challenges in raising funds from LPs, thus causing supply and demand gap in the ecosystem.  “We are not becoming price-sensitive. But multiples on exits are going to be different for India, valuation methodologies will be different in India,” he noted. 

He added that the Indian economy is robust in the long term, so if investors miss out on investing for the next 2 years, they will be missing out a lot. 

Similarly, B Capital’s Banerjee said that the firm is a long-term investor but in every recession valuations game changes as the emphasis shifts. 

The Hot Sectors In The Post-Covid World

During the session, the investors reiterated the general sentiment about the growth in online education and emphasised that existing teacher-led models will be further disrupted as edtech becomes more accessible. Like many other experts, Hack VC’s Roman believes home delivery and ecommerce have naturally grown due to restrictions, but he is also keen on seeing how video gaming as an industry grows in this climate.

B Capital’s Banerjee was enthusiastic about enterprise SaaS startups solving cost-cutting and digitising processes. She bets on fintech to be a big benefactor from the impact but in niche areas like insurance.

BEENEXT’s Quaquebeke said he looked forward to how logistics and commerce along with applied sectors turn out. While Chen added that online sports or entertainment will grow along with fintech, medical or insurance-related businesses.

The panellists also highlighted that losing segments would include travel and tourism along with allied sectors. Other losers according to panellists will be films, animation, construction, restaurants, real estate etc. Roman noted that one of the losers will be blockchain technology too as those businesses don’t have a business model but depend on investors for growth. But, he believes, with reduced investor demand blockchain will be impacted as the crypto winter never ended. However, he continues to be bullish about the future of Bitcoin.

Advice To Entrepreneurs

While investors have been advising their portfolio on the impact of the crisis throughout the past few months, the primary advice is around survival and emerging stronger out of the situation, which would help them accelerate growth and scaling-up to take benefit of the tailwind.

Roman advised startups facing challenges about managing burn rate, hiring, layoffs if necessary, extending the runway, changing the business model or pivoting as needed. He also noted that it is a great time to build products, even though fundraising will be tough. Chen noted that founders need to have more precise judgment about the impact and save cash, even though the bigger challenge is the unpredictability of the market.