An open tête-à-tête with some of the most influential investors – angels, VCs, corporate funds actively investing in the Indian startup ecosystem on their views about various industries, the ecosystem, and their future plans.
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“India will not be normal again. As a country, we were in deep trouble even before the pandemic thing happened in terms of the economy. The revenue will not come back to normal levels, job losses will happen in the next six months, a lot of small businesses will shut down, and a lot of families will be pushed into the poverty circle.”
Anand Lunia, founding partner at India Quotient, echoes the sentiments of perhaps every major investor and venture capital firm in India. Not only are fundraising and exits about to get difficult, but growth will also become very difficult. He said that the startups need to up the game in order to come out positive and attract investments.
Anand Lunia, along with Madhukar Sinha, started India Quotient in 2012. Prior to this, Lunia was a partner at Seedfund, known for its exits in Carwale and Redbus. Also, he had cofounded an edtech company called Brainvisa, which he sold in 2005.
Besides the likes of KuKu FM, Fleetx, LoanTap, India Quotient has also invested in Lendingkart, Webengage and Faballey among others. Currently, in its fourth fund, the firm has done over 77 investments in total and has led close to 37 of them. Till date, it has done 11 exits, which includes Clip App, Grabhouse, Holachef, Belita among others.
Talking about the impact on the lending sector and on LoanTap and Lendingkart, in particular, Lunia said that the squeeze created by RBI moratorium has been so deadly that it’s as if the companies caught coronavirus and are now on ventilators. And Lunia had more strong words for the government’s efforts and the state of the market currently, where everything is shut but still the focus has not been on containment as indicated by the rising number of confirmed cases.
Inc42: What are some of the ways you think we can solve the problem of the market being down and money being scarce?
Anand Lunia: The problem will not go away, the lockdown will be more logically implemented only when white-collar people start losing their jobs, and when they start seeing that the lockdown is not good for them [from the point of view of growth], only then the lockdown will go away. That will happen. All these people who are cheering right now and celebrating all these stupidly written orders. Once they start losing jobs, everything will be more logical.
Right now, the poor do not have a voice as they are too scared. There is too much scaremongering happening. A lot of education has to be done for people to actually go back to work now.
On the other hand, if you look at the desperation of the government, the way they opened liquor stores for revenue, that tells you that the government or the administration is not necessarily worried about social distancing or Covid-19. They just want to have to give tough orders. I think there is some kind of misuse of power involved. Maybe, the government is gaining popularity, who knows?
Unless people lead their normal life, the cycle of money will not be coming anytime soon. While we also expect people to bring milk for us, do security work, healthcare workers and delivery boys delivering food and groceries. These people should continue to work, while we sit at home. The fact that everybody is raising voice for somebody getting out of the house, it is unnecessary.
If we look at the disease, it spreads only with prolonged contact in the affected regions, and it is not because you went shopping, However, the government has gone so deep into the scaremongering and now they can not even trace it back. Standing in a liquor line actually doesn’t let you cause corona or for that matter ordering food from Swiggy or Zomato is unlikely to cause it.
My math here is that every small businessman on the street who is not VC funded if they lose one month of revenue, they lose one year of profit. The second month of revenue, they lose all of their savings. The third month, they are defaulting on their rent because they do not have the money. Soon, the small business owner will shut shop. It has not happened yet, but this is bound to happen in the coming months.
As days pass, the government tends to keep increasing the lockdown, without any clarity on how the future of this country looks like. In my opinion, if everybody wears masks, it will be safe enough to go out.
Inc42: What do you think about the efforts so far in reviving the economy and in boosting healthcare?
Anand Lunia: The next three months of suffering will break the bone of every business. In spite of promises, by the first two lockdown announcements by the government, there has been no help of any sort. We have not seen the package at all. Sadly, most of the relief so far has come in a very perverse way. In other words, you got relief from future punishment.
Clearly, it looks like the government doesn’t have any money at all. It is possible that government revenues are also low. At the same time, we haven’t increased our healthcare capacity.
For instance, all of those temporary beds which were built up recently, I don’t think are functional. They are just demonstrations. In this weather, how do you expect a train bogey to function as a hospital? People will die because of the heat! It can not have air conditioning because it is a common air conditioning in those areas. They are not hospitals, it is just props.
I don’t think we have built any extra healthcare capacity and the government probably knows that the real capacity of the hospitals is far lower than what they are claiming and probably it is one of the reasons that they are reluctant to open in India. If we opened, and the number of cases increases, chances are that India will have lockdown 4, 5 and 6 in the coming days.
I wish there was opposition, where people are demanding to have a clear cut plan. The government needs to open up and let people have some normalcy. The risk will remain. Even if the country is under lockdown for the next six months, the number of cases in those areas will continue to go on, and there won’t be any ways to flatten the curve.
Inc42: What are the things within the startup ecosystem that are coming back online after this period of downtime?
Anand Lunia: The whole cycle has to move. You can’t allow 20-30% areas to run, without allowing everything in the country. Of course, travelling, restaurants, and malls will struggle in the coming days, only because of fear-mongering caused by the government. This is what the problem is, I wouldn’t balance any politician. In the end, they just amplify our voices. It is actually the literate people who have caused the biggest problem.
On a brighter side, online education will thrive. But, offline institutes will be affected very heavily, where admission gets delayed. Also, a lot of hospitals will fall down, as many nursing homes and dental clinics have been shut due to the lockdown. In the next three months, if this lockdown continues, they will all go bankrupt.
Inc42: If you look at food delivery startups such as Swiggy and Zomato, they are now selling grocery also, with 50% of their capacity. They have been spending a lot to build that capacity into new verticals. What’s your take on the hyperlocal grocery space?
Anand Lunia: There were 10 earlier, and by the time, all this plays out in the next 18 months, there will be 2-3 players left. There are chances that a merger will happen. I don’t see a reason for people not to acquire their competition today as death is inevitable. Going forward, most businesses will shrink.
In the real world, I see a very serious impact on the real estate market. Finally, this might be the pin that bursts the real estate bubble. Since people are losing their jobs, for the first time the defaulter on their real estate EMI will increase.
Inc42: In India, digital companies have had to lay off a lot of people? Previously, we have seen them having 8K-10K employees. With the workforce reducing, will startups also scale back in certain segments or demographics and go for lean sustainability?
Anand Lunia: This doesn’t work for VCs. The companies will not try to shrink. For most businesses, a small outcome is as good as zero outcomes. So, I do expect investors to push companies to grow big. Of course, it is possible, they might modify their plans, it is quite reasonable.
For example, Swiggy and Zomato getting into grocery delivery, and then medicine and later travel. It will happen, whenever the market comes back. I expect these companies to grow. Practically, everybody will try to get bigger, and they will spend. Going forward, companies like these will do a good job. The companies who are on top of the game will do anything to go all in, be it expanding their team, product, services, etc, in the coming days.
Similarly, I would want Ola also to keep trying for other verticals, even if they miss fire a few times as they have to expand their market. Also, I want Rapido to grow and look for other alternatives like grocery delivery. All of these changes will happen.
The biggest compulsion is not lack of business. It is that they have to become multi-million businesses, otherwise they don’t make sense for the investors.
Inc42: As an investor, what is the hardest thing in these tough times? How are you dealing with your portfolio startups?
Anand Lunia: The hardest thing is that these are the people we have worked with for more than years. Today, for us to go and say to them that they are on their own is the hardest part. Because we have to answer our investors and LPs. We can’t blindly invest, to bail them out.
At the end of the day, founders have to do whatever it takes to survive and deal with the repercussion. In fact, many of my founders have taken 50% pay cuts, some have even taken 100% pay cuts, they have let go of people, which is very painful, and we do feel the pain.
Again, coming out of fiduciary duty, we have to get out of verbal commitment for funding which is very unfortunate. But, this is not the right time for us to take a small stake in companies. We had to pull out of certain deals as it didn’t make sense at this point in time.
Ultimately, VC is a business of managing other people’s money, so every founder who is delaying rent to this landlord needs to make tough decisions and have to take equivalent tough calls in many places. At the end of the day, the VC’s reputation is very important. But, sometimes, even if it is a big hit on our reputation, we will still do the right thing for our portfolio companies.
Seeing founders going through troubles, even after making tough decisions like cutting costs, layoffs and shrinking etc, many companies will not see the next round of funding. We know that in our hearts, many will not survive, and the whole process is painful. Reality is that VCs are used to going through the pain in normal circumstances. But, the pain is very evident and visible in these tough times.
With inputs from Nikhil Subramaniam