[Matrix Moments] Our job is to continue to invest in cycles, says Avnish Bajaj on coronavirus impact

In these past few weeks, coronavirus has impacted several lives across the globe. In India, the number of cases has crossed 700, and the country is under a nationwide lockdown for 21 days. While social distancing will play a key role in helping curb further spread of the virus, the impact of COVID-19 can be seen across industries. 

In this episode of #MatrixMoments, Avnish Bajaj, Founder and Managing Director of Matrix Partners India, spoke to Rajinder Balaraman, Director of Matrix India, over a Zoom session about the impact of the novel coronavirus on the Indian startup ecosystem. 

“They say we live in interesting times; I didn’t realise it would become this interesting. I would say that there are times in life where a disproportionate response is the proportionate response. And I think in most of our lifetimes, we probably haven't seen something like this and I hope we don’t again,” says Avnish. 

While he believes that the Indian government’s response was good, the problem is the speed at which the infection can spread. So, social distancing is the current best step. 

“I think flattening the curve, social distancing, recognising where things stand, and not being either fatalistic or believing in destiny are all of that stuff you need to take action on now. And that fundamental action from all of us is social distancing,” says Avnish. 

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Invest and work from home 

But there can be flip sides to everything and one of them with this situation is working from home. While Avnish personally doesn’t like it, he believes it needs to be adopted. But, that can be done by setting a routine, he says.

Avnish explains, “The plus side is that we have a family workout regimen in the morning, which normally one would not be able to do with the kids running off to school. I have made it a point that I'm fully dressed as if I'm going to work, not with PJ's on, and pretending to be at work. And I think that mindset is important and required.” 

But for investors, they are still investing. Avnish says that they will continue to invest. All meetings continue as is, but how one does the management of due diligence evolves over a period of time?

“I'm not going to say this is the best time to invest. Our job is to continue to invest in cycles. This is a very deep and steady cycle, but our job continues to be to invest to that and we are continuing to meet companies and we'll continue to invest on first principles basis,” he adds.

He adds the focus is on the stakeholders – employees and the founders. 

“I know we are going to be setting up more and more interactions with founders. We have to figure out how we interact with the portfolio more and help them through this phase,” says Avnish. 

What curve are you at? 

The current crisis is a combination of health and economic issues. There are different theories floating around about V-shaped recoveries, which mean very quick downturn and very quick upturn. 

There is the U shape, which is slow, slower down, and then up and then there is the L, which is when you just stay down. The answer to what the situation is right now is not yet known. 

“I would say, if it turns out like China where six to eight weeks later, factories are now coming back online, then tech and startups are going to see the shift because they can rebound very quickly. Some of the offline ones, depending on the industry, like travel, may see some lingering effects. So, that may be a ‘U’ shape,” says Avnish.

The problem is when it ends up being an ‘L’ Shape. That would happen in the main economy if it takes a lot longer. One starts to see business failures, which in turn, have a cascading effect. Whether it's debt or due to a credit driven crisis. This one is a harder call. 

The next three to four weeks will tell India which of the three directions we are heading towards. Avnish says it is important to follow the protocols to flatten the curve as our healthcare system is not going to handle the explosion.

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The push towards business continuity 

However, unlike the other cycles, one has not had to think about business continuity in startup situations. Avnish adds founders were worrying about funding and other things but not about how a business will continue. 

“What is the key risk? How do I have my sales peoples in continue? So, I think that is a very tricky thing. We don't have the answer. We can be enablers to the answer. I think some of our peers like Sequoia and Lightspeed have put it that way. But I evaluate these things not just as an investor only but as an entrepreneur as well,” says Avnish. 

As an investor, he says he would look at various things like cashflow, spontaneity, how long can a startup can go, etc. For entrepreneurs, until the end of the month, Avnish’s advice is to work on a V-shaped scenario and move to variable costs.

If the situation gets worse, Avnish advises entrepreneurs to move to Plan B, which would probably mean more cards for a U-shaped recovery, including watching through till the end of April or even early-May. 

He explains, “And if things are really bad by then, I would move into the L-shaped scenario, which would be the survival mode. Possibilities are not probabilities. These are the possibilities. I'm going to err on the side of saying that plan for a V-shaped recovery right now and assuming everything else kicks in. But as a business leader, you have to think through possibilities, and you can’t get blindsided by them. And so, I think in that situation, I would just keep decent ideas in mind and have some clear plans on what would happen in each case, which some of our companies have started doing already.”

(Edited by Saheli Sen Gupta)