Startups are born from calamities, says Sanil Sachar of Huddle
Financial markets and industries across the world today are reeling under the pressure the coronavirus pandemic has put on them, and experts are saying we haven’t seen the worst of it yet.
Like the rest of the world, the startup ecosystem too has been forced to face some harsh truths, the biggest being that the money-well is drying up, and the purse-strings are being tightened. “Prudent capital management” are three words most investors are muttering under their breath like a prayer, but Sanil Sachar – Co-Founder of Huddle, an incubator – takes a slightly contrarian view.
Huddle is a Delhi-based sector-agnostic incubator, founded in 2017, with investments in over 25 startups, including blockchain venture HapRamp; super-food brand Wellversed Health; EV companies Cell Propulsion and RacEnergy; deep tech startup Trillbit, among others.
The company not only incubates startups, but ensures the founders are backed with the three pillars of capital - financial, social, and intellectual.
In an exclusive interview with YourStory, Sanil talks about how the pandemic has affected Huddle’s portfolio companies, how one should weather the coronavirus storm, and if there is any upside to all of this.
Sanil Sachar, Co-founder of Huddle
Edited excerpts from the interview:
YourStory (YS): Talk about how pandemic has affected Huddle, personally, and the startups you incubate
Sanil Sachar (SS): From day one we have asked our founders what they definitely need capital for. We have ensured that our founders have enough support and resources, even before raising capital. We are quite well-equipped right now, thanks to never solely banking on capital to run our ventures.
We see the startup ecosystem as one large huddle. All our founders, ever since the lockdown, have come together to help each other, in the form of supporting distribution, supply chain, market access, and even raw materials, for those in the same line of work.
YS: How has the lockdown affected Huddle’s portfolio?
SS: The true impact on any venture will be seen two quarters after the lockdown is lifted. Those that survive will be the winners.
In a way, we at Huddle have always been walking with parachutes on our backs, and now we’ve been able to use it to our advantage. Four companies in our portfolio have raised capital recently, and many others are still completing their rounds at a time when everyone is expecting investments to slow down. Our founders have also created revenue streams by supporting other founders during this period, so we’re quite okay.
YS: How have investment sentiments changed since the lockdown?
SS: The incubation space is recession-free because ideas and startups are born from calamities and opportunities. It is close to impossible to get an entrepreneur to stop their vision from seeing light.
The incubation space remains a breeding ground for ideas, products and services, despite the economic slowdown. We believe the evaluation of ventures will remain strict, and the measures of supporting founders in the incubation space need to be more intensive and tangible.
YS: How can early-stage startups overcome the challenges the pandemic has brought with it?
SS: Firstly, this might be the first time a situation like this has impacted early-stage startups, but it will pass, and circumstances will change for the better. Founders should take this time to reach out to other entrepreneurs, mentors, investors, and enablers, to cope with what they might perceive as a large problem, but is – in most cases – solvable through external support. They should take this time to slow down and skill-up. A lot of ventures that have team members with more than one skillset, can use this time to create more robust business strategies.
Secondly, founders raising capital – especially ones who are being forced to shell out more equity due to the current circumstances – should remember that any capital raised right now will be cheaper than it will be the next year, at the very least.
Third, we’ve seen teams working in unison with each other, and with other founders, and this has made us realize that the best way to conserve capital is by bartering resources.
Finally, take your mind off the situation. Create multiple avenues that can help you leverage your company in the sector you are in. Once that is done, take time to relax, and spend time away from work with your team. The moment markets open, we will only have the strategies we built, and the energy we’ve conserved.
The only way to win, as an entrepreneur, is by reacting positively to every action. Those that can do it for a longer time will inevitably, win.
YS: What are some long-term impacts the coronavirus pandemic will have on the Indian startup ecosystem?
SS: We’re bound to see fewer angel investors next year, and thus, lesser early-stage deals. We might see companies going from pure seed to Series A.
We will see fewer bridge rounds as companies that will grow to Series A, and further, will be venturing out with strong cash flow, several revenue streams, and a diverse set of paying customers on board.
There will most likely be a reduction in the competition too – I see at least 20 to 25 percent of early-stage companies shutting shop two months after the lockdown lifts, and another 20 to 25 percent failing to survive the next two quarters. Going forward, companies will have more appreciation of their potential without capital.
Foreign VC companies might see India as a better option as deals will get cheaper.
YS: Which sector do you think is going to face the most challenges?
SS: Firstly, any slowdown or challenge faced will be unanimous for the first eight to ten months. This timeline takes into consideration the fact that every industry will take just over a quarter to analyse the impact COVID-19 has had on them. It will show up in the books in the second quarter, and shareholders will then take actions.
Ventures that are not building anything that is consumed daily, or are not fulfilling any necessities, will see harder times, but I believe the situation will not eradicate any industry, so there won’t be any particular industries that’ll see a slowdown. Ventures working on products in the premium segment might see a pause in business, unless they restructure themselves to provide more bite-sized luxury items, and then ease people back to the premium segment.
From an investment standpoint, equity-raising will see a decrease in tempo, and this might actually be beneficial to the ecosystem as it will ensure companies make more value-driven organisations that make money, rather than pure-play valuation-based companies that look good from a distance but have gaps between their true value, and perception.
YS: Which sectors do you think will benefit from the situation?
SS: There will be a considerable rise in healthtech ventures working on preventive measures across acute and chronic issues. People’s mindset is going to be that of caution, and therefore, this sector will likely see a spike in investments. This will also spark an instant rise in super-food brands catering to solve ailments.
Cloud-kitchens will become relevant, and ventures enabling backend efficiency, across sectors, will be valued more than ever.
YS: Your advice for startups in the growth phase?
SS: Retain your current clients by understanding how they have been most impacted by this situation. Client acquisition is important in a normal-growth phase, but this is the new normal, and retaining a client might be as hard, if not harder, than acquiring new ones on any other given day.
Cash is king. Therefore, save cash in all ways you can. This is a hard time for businesses, but personal wellbeing comes first. Entrepreneurs need to ensure that team members are not impacted, or they aren’t being forced to cut wages. Additionally, hold onto any new developments as they could become added costs.
Going forward, capital allocation should be a two-year plan, at the minimum. This period has taught everyone that taking the future for granted is definitely a fool’s move.
YS: Your tips on working from home more efficiently?
SS: The art of working effectively from home is ensuring you stick to a schedule to prevent overworking, or under-performing.
The first step is to make yourself believe that you are not at home. In order to do this, place your work amenities in a different corner of your home. This will help you transport yourself to a new setting, and you won’t feel claustrophobic, or ‘stuck at home.’
Schedules are busy during this period, but it doesn’t call for working over-time just because you feel you have more time being home. Working hard, and working smart, need to go hand-in-hand.
Communicate with team members, clients, and any stakeholders regularly. What we are certain about is that once this lockdown lifts, and the ecosystem is safe to pick up speed, everyone will be busier than ever, and therefore, utilising this time to work in unison during confinement, might be the best way to prepare ourselves once we are back to business-as-usual.