[TechSparks 2020] 5 key takeaways for startup founders to win investors amidst crisis
COVID-19 has upended businesses and companies across the world, and India is no exception. The startup ecosystem has been greatly impacted over the last few months, with investments taking a hit.
The economy is slowly reviving after the lockdown, but the reset in various sectors and industries across India and the world mean raising capital seems to be a completely different ball game.
In this situation, how can startups eyeing scale raise funds?
At a TechSparks 2020 round table on “Winning Investors Amidst Crisis”, industry leaders shared their experience and takeaways on how to win investors amidst the slowdown and expounded on fundraising strategies founders need to know.
The panel included Karan Mohla, Executive Director, Chiratae Ventures; Ritu Verma, Managing Partner and Co-founder, Ankur Capital; and Rama Bethmangalkar, Director, Qualcomm Ventures. The session was moderated by Gaurav Arora, Head of Startup Ecosystem, Asia Pacific & Japan, Amazon Web Services.
Changes in the startup ecosystem
It may seem that there is a slowdown, but the panel said there had been an increase in deal flow and surprisingly productive conversations across the board.
“Even during the first three months of lockdown, we saw sectors like education, healthcare, gaming, and entertainment showing a positive impact. What stands out is the quality of ideas and the way founders are thinking about businesses in a post-COVID world,” Karan said.
Ritu spoke about her experience, stating that investors with a portfolio focus on agri, food, essential services, and other digital areas did not take a hit. “Anything that had a physical presence was disrupted. But anything that had a digital presence and was digital-first actually got tail winds,” she said.
While sectors like agri, SME businesses, and even retail to some extent saw a positive rebound, the surprise was the way small businesses adopted technology.
As Karan said, most small businesses had to digitise everything – this ensured many sectors that were counter-intuitive were more favourably been impacted in the last few months. “I think we've all adapted in many ways. It goes back to something fundamental. People adapt when situations need them to. And that really is, I think, the biggest takeaway of 2020,” Karan said.
Investor expectations in the new normal
A startup “solving problems for the masses” has always been a key attraction for investors. With COVID-19, the ecosystem saw a surge in the number of innovations along with the emergence of a breed of young entrepreneurs keen to tap new opportunities.
“But at the end of it, for us to be taking a look at something, we have to believe that this is a long-term play and not a short-term opportunity,” Ritu said.
Rama said when it comes to fundraising, the fundamentals still remain the same. He said founders should draw their own terms and instead of term sheets and valuation, raise valid negotiation points with investors. “They should see how they can pay it back to the investor if they were to perform the way investors expect them to perform.”
“The problem usually is when you don't have clarity on those red lines. If they [founders] are clear about what it is that they can compromise and live with, what it is that they can't live with, they can make their process much smoother,” Rama added.
Key learnings for founders
- Startups must have a diverse set of investors. There is a small cost, but in the long run, the benefit outweighs the cost.
- Doing diligence on investors is important. This will also identify the right investor or set of investors for the startup.
- Having a healthy relationship across the investor board helps because founders are then able to have tough conversations. Be it on preservation of capital and resources, changing strategies, or the business model, having the ability to have those conversations helps founders in taking some very tough calls for the ultimate survival.
- If a founder can extend the runway, either by raising more money or by conserving cash, do so by all means.
- Building efficiency around the product, cost structure, and assessing market demand are a few elements that can break or sail a startup’s ship. Improving the product, reducing fundamental costs, and identifying demand from local services, can give another edge to startups amidst the competition.
It is clear that the startup ecosystem has gradually accepted the new normal. The evolution will continue as will the emergence of new possibilities, which is why founders should be prepared to do what it takes to win investors in a post-COVID world.
TechSparks - YourStory's annual flagship event - has been India's largest and most important technology, innovation, and entrepreneurship summit for over a decade, bringing together entrepreneurs, policymakers, technologists, investors, mentors, and business leaders for stories, conversations, collaborations, and connections that matter. As TechSparks 2020 goes all virtual and global in its 11th edition, we want to thank you for the tremendous support we've received from all of you throughout our journey and give a huge shoutout to our sponsors of TechSparks 2020.