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How has the year 2020 been for the investments in startups ?

When the year 2020 had started, no one had predicted that the rest of the year would be spent mostly indoors and that there would be hardly any travel in the year. The unpredicted COVID-19 has impacted the world in many ways. The pandemic impacted the global GDP negatively and India was one of the worst affected countries in terms of its GDP growth. However, all is not as dismal as it seems. While on one hand, the GDP for 2020 had been estimated at -8.9%, on the other hand, for 2021 it is expected to be at 8.6%. India's share of the global economy in 2020, on the basis of PPP, would decrease from 7.06 percent to 6.6 percent in the next year. The unemployment rate, which was 3.5% in 2019, increased to 23% in April 2020 and then dropped to around 7% in October 2020. During 2020, most of the major investment decisions were postponed. There has been a significant impact on the offline businesses and those dealing in non-essential products.

Some of the government's measures taken during Covid times were aimed to address a larger impact on the Indian economy. With respect to investments in. Venture Capital and Private Equity, India has attracted a cumulative investment of more than USD 100 billion, more than USD 40 billion of this coming from global investors like Tiger Global, SoftBank, Google, Sequoia Capital, and others.

While Covid had a huge short-term impact on the economy, the recovery has been also very strong. This recovery could be seen across various areas. We noticed V-shaped curves in railway freight, import and export, sale of petrol and diesel, power demand, GST collection, PMI index, as all these had suffered a sudden dip in April-June but have been rising gradually after that. From the perspective of a Venture Capital Fund, I feel there cannot be a better time to invest in tech-driven models, rural economy, etc.

What is the relevance of venture capital for the startup ecosystem? The biggest challenge for any entrepreneur is getting validation of their business at the early stages of their venture. Even if the entrepreneurs are on the right track they may abandon the ideas only because they did not get validation at the time when they needed it the most. Validation at seed stage is. provided by Angel investors as well as organised incubators and accelerators. When the start-ups have got the confidence on their product market fit and the potential scalability of their businesses, they approach Venture Capital investors for further validation and scale up of their business. The stage when the first institutional investor comes on board in a start-up journey is called Series A round of funding. Less than 10% of the start-ups make it to Series A stage. At this stage, Venture Capital investors only bring capital but also provide mentorship/support to these companies. The challenge that we currently face is that there is a huge gap in the availability of Series A, B and C stage investors in India.

Challenges faced and how did you overcome? Personally, I feel the biggest challenge during 2020 was the inability to have face to face meetings and restrictions on travel. At IvyCap we have taken several investment decisions without having the need to travel, however, face-to-face interaction is important to get into comfort with the team. It is not easy to build the same level of trust through virtual meetings and this may have slowed down the process of investments for many investors in 2020. However, there is ample evidence to show that work-from-home has generated more productivity for businesses and start-ups have grown immensely in the last six months of the year. Going forward, I expect people to continue with practices of working from home and taking the majority of their investment decisions over zoom calls.

Trends for 2021 Recently, we have heard of a different mutant of the virus that is equally or less potent but more aggressive in spreading. In India, the recovery rate has already gone over 98% and the death rate from the virus is less than 1.3%. We have also heard that there are multiple vaccination products that are now coming available in the market. There is hope that by June 2021, a large population would have been vaccinated. In case the vaccination gets delayed and the new strain of the virus starts spreading faster, there may be a risk of another lockdown. However, most of this will be clear by March 2021. I sincerely hope that the year 2021 will end at a much higher note than 2020.

Leadership lessons from the pandemic Pandemic had been a real stress test for entrepreneurs and investors alike. A stress test is done to check the brittleness of any material. Depending on the resilience, the material can either break or continue to sustain the pressure. The start-ups that have broken during 2020 will find it hard to recover. However, those that were able to sustain the pressure, will come out as winners and will do extremely well going forward. Lessons learned during a period of stress test teach you lessons for the long term. Entrepreneurs have learned how to deal with their teams, how to manage their finances, how to interact with customers and deal with existing and future competitors. Decisions taken during tough times serve as examples in the future. The pandemic has indeed given us very powerful leadership lessons.

Why are you considering SDG as an important aspect of the framework? Most of the corporate world globally is moving towards adopting the Sustainable Development Goals (SDG). Indian companies are also gradually aligning with this framework. SDG goals were set up by the United Nation in order to improve the quality of living by 2030 knowing that the world is facing huge challenges with respect to Health and wellness, Education, Climate change, gender equality, life on land, life underwater, and others. We would like to be the first Venture Capital Fund in India and globally one amongst the first few to incorporate it in our investment philosophy. We believe that this will create a change in the mindset of the founders. This will not just improve financial returns for investors but also improve the overall quality of living.

Message for industry fellows As long as you are focused on what you are doing, you will achieve your goals. I believe India is the place to be for the next decade and each one of us is fortunate to be a part of this great success story. IvyCap will be at the forefront of making an impact in the Indian start-up ecosystem giving its investors highly differentiated financial returns along with the satisfaction of meaningful contribution to society.