We are passing through the unprecedented times of economic, business, and personal uncertainty due to the COVID-19 pandemic. It has triggered economic downturns and losses on an immense scale around the world. The uncertainty persisting at the depth and length of the economic slowdown has made it even more difficult for businesses to adapt.

The VCs and business leaders need to remain calm during such an unpredictable threat prevailing due to COVID-19. They must look ahead into the future rather than making hasty decisions at the moment that may prove horrible in the future. Moreover, it is also essential for the VCs and businesses to act swiftly and adjust their business strategies in the near-term that maintains the idea of preserving the necessary resources of the business.

• The current recession resulted in massive job losses and there are great chances of loss of employment in the future.
• Restricted cash flows after job losses with tightened hands of consumers with their narrowed budget.
• Declined revenues and profits

• The current situation is quite different from what existing businesses have experienced during the dotcom bust and 2008 economic meltdown. These startup companies were not in existence during the dotcom crash back in 1999-2000. The majority were not around in the 2008 financial crisis as well.

According to Andra, an entrepreneur’s life is more complicated than investors. Unlike investors, who can recover the losses of a few companies with the help of profits generated through other companies, for entrepreneurs, it is quite a difficult situation to move on. They have to be focused, energized, and devoted to their business, whether in a normal case or at the time of crisis.

Andra also highlighted the cyclical and structural issues presently encountered by businesses. As far as periodic matters are concerned, the companies can face a hostile impact for the next three to six months. But, the main point of consideration for the companies is the structural downturn, i.e., whether the slowdown will continue or surge will change for them.

Key Focal Pointers For Founders 

Navigating through the historic economic crash and challenging period of the pandemic, businesses necessarily need to adopt the right mindset. While it is highly challenging to operate business-like on usual days, it is essential to keep hope as there is a light at the end of every tunnel. Actions taken today are going to decide your future scenarios. Sateesh outlined a few focal pointers which founders or startups must keep in mind while approaching the VCs:

• It is necessary to find investors.
• Like investors, entrepreneurs should have clarity regarding the partner they are going to approach for securing funds.
• It is imperative to find founders and the solutions that best fit for the business products.
• Double-check the idea to be pitched to ensure it is best suited for the current economic and pandemic environment.
• As far as online pitching and meetings are concerned, most VCs would prefer to have in-person meetings to finalize the new deals.

Critical Mistakes Committed By Founders While Pitching an Idea

Sateesh also pointed out a few general mistakes that founders usually make while pitching to VCs. Some of the common mistakes highlighted during the pitch talk are:

• Be open, candid, and honest about yourself.
• Don’t jump to express your viewpoint for the number of valuation funds directly. Do not put deadlines on the investors regarding funding.

The Business Model for Endiya Partners

While speaking about the business models adopted by Endiya Partners, Sateesh explained about product-fit or solution-fit businesses. He quoted the example of Darwinbox, which is also mentioned in their portfolio. It is a cloud-based HR management software solution that manages the entire employee life cycle on a single unified platform.

As far as the founders of Darwinbox are concerned, there is a massive clarity of thought that several mid-sized enterprises in India shall embrace cloud technology. With such companies rapidly growing, the next focus will be on human capital management that needs an end to end cloud-based HR management solution.

In such a case, the founder’s product-fit was apparent as they knew where to position SAP and where Darwinbox needed to place based on their past experiences and knowledge of dealing with the customers. Also, startups should keep in mind that it usually requires 1-2 years to find a good product-market fit.

Prospects of Startups Post COVID 

Talking regarding prospects for startups and businesses post-COVID, Sateesh explained that it is crucial for the firms to re-invent themselves in terms of the digital transformation of all the business processes. With the escalated dependency on work from home policy, firms need to look out for the changing dynamics of their core business processes like finance, marketing, and HR.

Businesses like the online education industry, gaming industry, healthcare sectors shall experience positive growth during these times. Contact-less commerce, industrial automation, and artificial intelligence-based working models are already seeing a spurt in various industries.

Sateesh also emphasized the new telemedicine guidelines for virtual consultations which were in debates for many years in India.

Q&A

What is the approach taken by Endiya Partners or in general the VCs during the COVID 19 pandemic?

In reply to this question, Sateesh said that as the situation is critical, VCs are going to hit a pause button or go slow for the investments for at least 2-3 months. Andra responded to the question with the following key points -

• VCs are currently busy triaging their portfolio. They are evaluating the existing portfolio and prioritizing the projects based on their best- fit for the current funds and other resources that are more likely to achieve success.

• Investors need to communicate their present strategies for all their partners.
• Create plans and look out for the deals with a long term horizon perspective.

What are the main pillars you see when you are investing in early-stage startups? Does age or experience play a crucial role in it?

As per Andra, Endiya Partners is more like an enterprise investor and has B2B funding mode rather than B2C. So, for B2B products, domain expertise, preferably at least 4-5 years, is quite essential. However, age is not a criterion for Endiya Partners when the enterprise possesses expertise with startups.

How does a VC value a startup?

Startup valuation is a mix of art and science. From the valuation perspective, there is an adjustment of 15-20% from the VC’s point of view. This percentage goes up to 30-40% in the case of series B or series C startups.

Apart from experience and domain knowledge perspective, what other qualities do you look for in the founders?

Investors are always in the lookout for intellectual power, the energy, and the approach which the founding team brings to the table while pitching a product or an idea. Moreover, for the investors, most opinions and investing decisions are gut-based rather than being rationale. It just means that investors generally create their mindset during the initial meeting itself, whether to trust and invest or not in a particular idea or a startup.

What advice would you give to startup mentors/incubators for managing young startups in these times?

According to Sateesh, the incubators or accelerators need to understand the importance of where a particular startup stands in terms of business category, i.e. whether they are fast-growing or slow-moving yet touching their goals and adding value. There should be a financial model in place for such companies. The incubators need to analyze the opportunity cost while investing in young startups.

Due to the current scenario, many businesses might do a business model pivot. Do investors consider this a red flag?

In such cases, when the business model pivot is logically sound, most investors agree to it. The investors will undoubtedly look at the opportunity, the team’s energy, whether the axis is in an adjacent space or it is into an orthogonal one before taking further decisions.

How much is early traction important in this phase given that currently everything is poised? Can you please share your insights?

The startups should have minimum viable products and a couple of big pilots in their kitty rather than wire frames or an idea before approaching an investor. Taking care of customer endorsements is also essential for startups.

Is patenting important? What is your view on this?

Yes, patenting is important in startups but you should not reveal too much, instead realize the product first and then patent it.