Startups must revise business plans, cut down on redundant expenses to tackle COVID-19, says Dr Apoorva Ranjan Sharma of Venture Catalysts
Dr Apoorva Ranjan Sharma, the Co-founder of Venture Catalysts, and the Managing Director ofAccelerator Fund, has backed over 100 startups, and has also been a part of the success story of Gurugram-based unicorn .
A PhD in Incubation and Diploma in Mentor Studies from Berkeley Institute of Management, University of California, USA, Apoorva studied engineering at HBTI, Kanpur.
Through the accelerator and the fund, Apoorva has invested in fintech startup; men’s growing brand, Beard; hyperlocal daily delivery startup, , which was acquired by ; co-working space , which has been acquired by , and several others.
He has also been responsible for establishing incubation funds and family office funds like VentureNursery, Amity Innovation Incubator, Somaiya Incubator (RIDDLE), Mata Vaishno Devi University Incubator, and Indian Angel Network Incubator to name a few.
In a conversation with YourStory, Apoorva speaks about the impact of COVID-19 on early-stage startups, and what they can do in the coming weeks to ensure they survive and grow.
Edited excerpts from the interview:
Dr Apoorva Rajan
YourStory (YS): What is the impact of COVID-19 on startups?
Apoorva Rajan (AR): Startups in India are facing serious disruptions due to the COVID-19 pandemic. The nationwide lockdown has forced many to shut their operations for the unforeseeable future. Companies have seen a sharp fall in business revenues, and a growing gap in their cash flow. Apart from that, startup funding has taken a hit with investors becoming wary of economic uncertainties trigged by the coronavirus crisis.
Data from Venture Intelligence suggests that VC investments in Indian startups fell 22 percent to just $1.74 billion in value terms, when compared with the same period in 2019. The numbers give us an idea how funding activities have declined lately.
While some startups in sectors such as edtech, online grocery delivery, home entertainment, and cloud computing are witnessing a trend-defying growth during the pandemic, the overall ecosystem has been severely impacted.
YS: What will it take for startups to revive?
AR: The pandemic may last for a few months, but the startup ecosystem will continue to face challenges long after that. Hence, a strategic and well-devised approach is required for startups to revive in the post-COVID-19 era.
Startup leaders must revise their business plans, cut down on redundant expenses, and put a temporary stop to expansion plans. It is important to note that sale cycles will increase and average deal sizes will decrease.
Startups that are currently focussing on improving their core offerings are more likely to weather the coronavirus storm than their counterparts.
YS: What is the impact on investment for early-stage startups, and how will it impact their growth?
AR: The impact on investment for early-stage startups is comparatively low. This is because early-stage VCs invest with a horizon of three to seven years when making investments in a startup. Nevertheless, we expect a decline of around 20-30 percent in both volume and value of deals.
This will directly affect the cash flow of many early-stage startups, which are already struggling to cope with liquidity issues. While the current scenario looks grim, the impact will be for the short-term.
Aviation, travel and tourism, hospitality, real estate, and logistics are among the sectors that have been impacted the most by the pandemic.
YS: What advice would you give startups at this time?
AR: Following a contingency plan is the only way to tackle this unprecedented crisis. This is the time to preserve cash, re-evaluate your business strategy, re-allocate your resources, and take necessary steps to reduce cash burn.
If you are running on a razor-thin margin, cut down on marketing/advertising costs to stretch the capital. Take a hard look at your balance sheets, and take care of your statutory liabilities to avoid bankruptcy. Do not resort to layoffs of employees as they will determine your company’s success post the pandemic. However, if necessary, offer pay-cuts until the situation subsides.
YS: Will startups need to re-consider their business models?
AR: Once the crisis subsides, investors will seek startups that can guarantee long-term growth. Companies with sustainable business models will likely have an advantage over others. Startup leaders have to understand that me-too business models will not survive in the post-corona world. The ecosystem will only have space for innovative startups that solve real-life problems.