Notes from the startup world
As an early stage investor, my world is largely surrounded by startups. Many of these businesses serve as barometers for what is happening in the larger economy. Last few weeks have not been easy for anyone. Even for those of us who have seen the financial and tech meltdowns, this crisis stands unprecedented. We are surrounded by frenetic whatsapp forwards, never ending stream of conference calls, scraps of epidemiological wisdom and geometric possibilities of recovery. Finding some hope and sanity in all of this has been hard.
For investors, the last few weeks have been quite predictable — make sure every portfolio company has an extended runway, get capital for those who don’t, support those with growth opportunities and in general, find ways to help founders. For founders however it has been far from predictable. For a generation of entrepreneurs who had never seen a recession, no one would have imagined that the reckoning will be so soon. From scaling businesses and preparing for fund-raises to having to worrying about ‘day-zero’ scenarios has been quite sudden. And frankly nothing could have prepared one for a crisis like this!
Every crisis brings with it some unseen opportunities. Every crisis also tests the limits of our resilience. Amidst mathematical models and economic projections one powerful factor is often overlooked — power of human optimism. While the startups in the country are still only a small portion of the larger economy, if we are looking for hope amidst this gloom, they may be a good place to start looking.
With a large active portfolio, I have been in touch with most of our portfolio founders to learn how they are responding and offer help. The first two weeks resembled a dystopian reality — advanced term sheet conversations held up, startups stuck with cross border fund raise, founders stuck abroad not able to return, several founders seeing their business grinding to a halt, spiralling receivables, new business conversations postponed and almost all of them having to undertake painful cost reduction measures. I am sure this is familiar to all of us in the startup world.
Amidst all this gloom, two things have stood out in my conversations with founders — their sense of optimism and the speed with which they have adapted to the evolving ‘normal’. In every single case, the founder had some basic idea of what they needed to survive this crisis and had put in place a plan to execute on that. Most of them had put together a plan to extend their ‘day zero’. Some of the larger ones had a business continuity plan in place. They had worked out various demand scenarios. Business model changes, pivots, new ideas for distribution, automation — nothing was out of question. Most had put in place a daily/weekly communication cadence with all their team members to keep the teams updated on business realities. If they were anticipating a crisis in collections, they had reassured their vendors to expect delays. The tough decisions on reducing headcount was dealt with as humanely as possible, with the principle of pain being shared equitably and a promise to revert to normalcy once the situation improved. While most of my conversations started with how the business had fallen to near zero levels they ended with a note of optimism around how they will bounce back. My sample is certainly small. But I spoke to several of my VC friends, across large and small funds, for their views. Every single one of them endorsed the sense of optimism among their portfolio founders and how quickly they had adapted.
There are a number of unknowns on the business front. There is no line of sight on how long will this shutdown last, views on the shape of recovery vary, when rebuilding will begin is uncertain. This list is long but one thing is clear. Our startup founders are prepared, optimistic and believe they have it in them to bide this crisis. That they want to do this while taking decisions as humanely as possible and leading by example gives me a lot of hope that the Indian startup system is in safe hands. All of us have our own predictions on which business model will emerge stronger, which ones will survive and which will go under. Time will tell how this plays out. There will be some winners and losers, but everyone will be a ‘survivor’. When we look back at this crisis one thing that will stand out — the emergence of mature founders who have the mindset to weather a crisis. And that I think is a huge positive!