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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“You must have two teams, one thinking about here and now. The other, thinking about the future,” shared Anjali Bansal, the founder of Avaana Capital, inspired by something Deepak Parekh, the chairman of HDFC, said recently.
For Bansal, startups and VC funds need to have a lean team to survive any crisis as big as the coronavirus pandemic. They need to get more creative than ever, solving the present-day problems and looking at opportunities that will emerge in the coming days.
The vision has to include how they will position differently once the crisis is over, and what will strengthen them on the basis of medium and long-term impact.
Founded in 2018, Bansal’s Avaana Capital is in its first fund and invests primarily in early growth stage startups (Post-Series A), particularly focused on financial services, consumer and producer access and market enablers. It is associated with companies such as Delhivery, Darwinbox, LoanTap, Urban Company and Nykaa among others.
Inc42: How are your lockdown days going on? How are you maintaining a work-life balance?
The work has doubled since the lockdown as there is a lot more intensity and engagement with various industry stakeholders and portfolio companies. Since there is no transit or commute time, you literally go from one meeting to another, as I did right now. There are zero breaks. It gets very intense, starts early in the day and goes late in the evening.
In addition to routine work, we are working closely with our portfolio companies on a continuous basis. I am not alone in this, me and others like me, we are all very actively engaged in our entrepreneurial ecosystem. Startups reach out to us, other funds approach us for support and advise.
Plus, we are doing work on a large e-supply project as well. In other words, it is more than a normal workday.
Inc42: What is your take on how startups have reduced travel and adjusted to work-from-home and other changes?
Anjali Bansal: I think it has become more of a norm as we don’t have to travel much.
In a way, this is good for the environment. If you reduce air travel, there will be a significant impact on reducing the carbon footprint.
“Sometimes, only half-jokingly I say that Covid is having a more significant impact on climate change than any number of climate conferences held in the world.”
Look at the air quality index in all our cities right now. This will not continue exactly like this once the lockdown is over, but business travel will definitely reduce, which will, in turn, have a significant impact on the hospitality industry, hotels, conferences and F&B businesses among others.
Inc42: What are the other trends or the impact that you have seen?
Anjali Bansal: In the past, during the global financial crisis or the dot-com crash, things were gradual as you could see the disruption coming. The coronavirus pandemic, on the other hand, has put a halt to everything — sort of like 100 to zero in one day.
Firstly, the essential supply chain was interrupted — no movement of people means no supply chain. Undoubtedly, this has had a huge impact on different companies across sectors. Slowly, we then started figuring out solutions around it. We will come to that later.
Secondly, people and goods are not the only things impacted, the coronavirus pandemic has halted the capital for businesses. Everybody is trying to understand the overall impact and are thinking about what to do next? Not only from an investing perspective but also from a business decision point of view, be it equity or debt or even working capital in terms of receivable, payable and normal flow of business has come to halt as industry pauses to see what comes next.
Thirdly, there is a fair amount of uncertainty once the situation reaches normalcy. What will the new normal look like? Well, we will have to find that out ourselves.
However, there has been a lot of support for companies that are operating in the essential services space. That will continue to evolve with time. In addition to this, we are seeing a spike in sales as people are buying more and are hoarding essentials. On the other hand, the non-essentials or discretionary spending has come to a halt.
A number of segments will see a rapid acceleration of digitisation. Prominent among them are education, healthcare and Consumer services. Thus, we may see accelerated growth in those segments.
Businesses that have digitised themselves have an upper hand and will bounce back quickly and continue to recover much faster than others.
Inc42: You have backed and mentored prominent startups such as Delhivery, Urban Company, Coverfox and LoanTap among others. How has this pandemic impacted your portfolio companies?
Anjali Bansal: Currently, there is a massive demand for FMCG, food, grocery and other essential supplies. Delhivery has had a huge demand, and many people are reaching out to us proactively. Therefore, the company is working non-stop around the clock to ensure essentials are supplied to its customers. It is now delivering to over 15K postal codes.
In the insurance space, if we take the example of Coverfox. It had two and a half days of interruption, and in no time they set up a remote call centre operation. Now, they are back to a hundred percent productivity. The interest in life and health has gone through the roof, while the auto insurance witnesses a slump as there are no new sales happening at this point in time.
In the fintech space, if we look at companies that are into lending services, be it NBFCs and financial institutions, LoanTap is positioned in a unique way where it provides loans to salaried professionals, which is a very high-quality portfolio in any case compared to subprime lending. We do anticipate that there will be delayed payments and there might be less collection than expected, however, we are not seeing a massive drop yet.
Plus, the Reserve Bank of India (RBI) ruling on the moratorium, LoanTap has had a good relationship on the liability side, where the founders have worked hard to get moratoriums from their lenders.
Urban Company is at the forefront of ACT (Action Covid-19 Team) vs Covid and putting in place a program to support innovation and provide social security-loans and insurance- to all its partners.
Inc42: What is the game plan going ahead for startups? How should they prioritise?
Anjali Bansal: Good companies are saying ‘let us use this time to repurpose, reimagine, refocus and utilise our resources differently’. They are all looking at new product development!
Typically, in the boom times, all of these companies should be focused on growth so that they are not able to spend time on new product development. So, this is an opportunity.
Also, we are seeing new business in the new product line launched in the coming years. Therefore, better companies are repurposing, reimagining and redeploying their teams in a different way.
Inc42: Survival vs growth — what should startups do to increase their runway? How is the crisis impacting funding?
Anjali Bansal: At this point, everyone has to get creative. Any company that has a short runway, must take advantage of all funding options, which would include raising a bridge, internal round. If somebody is willing to invest at this point even if it is a lower valuation, they must work with their stakeholders and accept that lower valuation and take the equity.
On the other hand, if they are a high burn startup which needs to extend their runway, there are debt options that are becoming available. SIDBI recently announced a debt round for startups. So, this is the time when companies and founders have to become creative about everything, be it their product, their market as well as their cap structure.
Most funds right now are being conscious about new investments. I say cautious also cautiously because that doesn’t mean they are not closing new investments. It is just that during the period of crisis, we don’t know how long this uncertainty will last.
Firstly, funds are reserving capital to support their portfolio companies in the near future, if their portfolio companies need money.
Secondly, for new investments, they are proceeding in a cautious way. But we continue to have a good pipeline and innovation led models will still see funding interest. As I mentioned earlier, segments that see a digital shift will see even more funding interest.
Thirdly, the good thing I must say is that the startup community has really come together to collaborate and support each other at this point in time, both as a national cause as well as startups that are going through some tough times. Whether through ACT vs Covid which Avaana also supports and the Start Up India Challenge where Avaana is also involved.
A number of startups are supporting national initiatives for essentials supply chain, healthcare innovation for ventilators, test kits, sanitisation, and personal protective equipment (PPE). The startup community is supporting meal programs for frontline workers and stranded people and migrant labour.