IvyScope Newsletter - August 2020

Dear Friends ,

We are now in the 5th month of a once in a lifetime crisis. In the last few months we have been updating the IvyCap community on our view of the emerging scenario and the impact of the crisis on IvyCap and its portfolio companies.

In my earlier note, I had written about the three-pronged shock to the system namely, Health, Economic and Financial. I had also written to you about the priorities of our portfolio companies namely to have adequate cash for a 12-15 month runway, a faster path to profitability, and maintaining operational health.

I am pleased to inform you that our portfolio companies are emerging from the crisis even stronger than they were in February 2020. In July, almost all our companies are at 75%-125% of their top line metric compared to Pre-Covid Month of February which points to a robust recovery. All of them have better profitability metrics than Pre-Covid days. Besides, they are adequately funded and are managing their cash flows to achieve the runway objective defined above. During this period, they have also managed to streamline their operations and prepare for Work-From-Home and adapt their customer engagement, marketing, supply chain to the requirements of the situation on the ground. It is safe to say that almost all our companies have scored a good grade in meeting the objectives laid out to deal with the crisis. The battle therefore is being fought well but given the long-term nature of this crisis, the war is yet to be won.

Examples of resilience and true entrepreneurship are many, some of which I had covered in my last communication. I want to capture some inspiring updates and some trend buckling performances of our portfolio companies that our team has noticed in the last few months.

Pharmarack continues to grow from strength to strength. It has increased its network size and has grown its platform offerings and delivery multifold during the crisis. It is an example of leveraging tail winds in a sector that is positively impacted.
Fingpay emerged as one of the big gainers from the shift to digital payment. Its volumes have almost doubled in the last several months. Even though small businesses and migrant labour have gone through difficult times, the company has proven that there is opportunity for the right products even in difficult segments.
Convosights which is our social media AI / ML platform has rapidly increased the number of engaged and monetization communities in the last three months. Having grown multifold, It has set itself a target growth 3X for the rest of this year and achieving 30 m members of the monetizable community by March 2021. In a world where marketing budgets are under review and the bar for performance marketing is set higher, Convosights is uniquely positioned as a dominant brand marketing offering on social media. OnlineSales.ai is a similar example of a company which has recovered rapidly because of the unique offering.
Clovia emerged as a profitable company and is on track to grow this year. It is now the largest independent online-first lingerie and innerwear brand in the country. It has also bust the popular belief that e-commerce companies lose money and cannot be profitable.
Leixir is a remarkable outlier. which is very dependent on offline footfalls at dentists in the US. It has surpassed all expectations, achieving the average annual run rate for 2019-20 in the month of July at much higher levels of profitability. This when the market volumes are down about 20-30% and when there are lots of examples of bankruptcies and distress in the industry. Similarly, E-shakti deserves a mention for the same reason. It has recorded the best ever month in revenue and profitability in an industry which is supposed to be a laggard in recovery.

Inspite of this positive performance, there is no scope for complacency. We believe that the spread of the virus will be with us for a while and the virus will spread regionally and inter-regionally for several months or quarters. As a result, we expect partial closures and localized containment to continue for several months leading to disruption in normal economic activity. Most projections show that almost all major economies will de-grow this year and have high levels of unemployment this year and possibly the next. The job losses and the fear of economic stress are making consumers more conservative in their spending. On the positive side, the government has unleashed a range of sectoral reforms and is actively trying to implement programs targeted and preserving/creating jobs and supplement incomes for those in the lower income and lower middle-income groups. This means that the India economy, while recovering this year, will continue to exhibit sluggish growth the remaining part of the year and next too.

This is not however a regular recession where companies and industries are uniformly impacted. In this crisis, I believe that four distinct macro themes to watch out that will determine success are elaborated below:

1. Disruption creates Opportunities

The link between Change and Opportunity is well understood.

This is well captured in Steve Jobs famous quote – “ Innovation is the ability to see change as an opportunity – not a threat” OR by Jack Welch’s quote – “When there’s change, there is Opportunity”.

The level of macro disruptions, and the sheer scale of change is unparalleled. The canvas of change is vast and deep such as the geo-politics driven changes in trade and investment flows; or regulatory driven changes such as opening up of agriculture markets; or whether it is new technology related such as magic mirrors or automation; or customer behavior related changes such as when and how he engages with brands and makes purchases; or competitive landscape related changes; or the changes in supply chain such as how efficiently and consistently a company can you service its customers and delivery its promise.

Never before have we witnessed such a vast array of forces disrupting industry after industry and reshaping markets and products across the world. The obvious inference is that this offers players with the right vision and business model an enormous opportunity to create businesses. While this will take some time to play out, we witness these forces at play in almost every industry that we are observing. From healthcare and ed-tech to essentials, from supply chain software to customer engagement tools in a B2B environment.

2. Big Winner and Big Losers Phenomena

With the scale of disruption unfolding, whichever lens we choose to view the unfolding events through, we are likely to see the Big Winner - Big Losers phenomena.

Some countries and geographies are likely to perform relatively much better and gain in geo-political-economic terms. Already there are countries showing much better ability to resurrect their economies than others, since they have more fiscal space, lower debt levels, greater ability to monetize deficits, and lower dependency on industries such as tourism.
There will be Big winners and Big Losers amongst industries. The market Cap of top 6 technology stocks in the US is now almost equal to the market Cap of entire Japanese market. Health Tech, Ed-Tech and other Digital businesses are already known beneficiaries, with revenues, valuations and adoption levels increasing. Similarly travel related platforms or commercial real estate platform or models like Co-working, Co-living are examples of obvious losers. IvyCap Fund 2 is continuing to solicit opportunities in the Big Winer industries.
Even within an industry, there is evidence of divergence in the fortunes of companies. Those that have a digital footprint, larger balance sheet, lower levels of debt and have a more variable cost structure are likely to gain. In the food space, online delivery models, with low fixed cost of cloud kitchens and a more digital acquisition of customers and with outsourced operations for delivery seem to do better than physical chains which rely on foot falls and have a high fixed costs which are stress and degrowing. So, while the mortality rates in offline restaurants are high, online cloud kitchen based delivery models should gain in the longer term.

Access to capital and valuation multiples, which is a big success factor for venture backed companies will, more than ever, start to reflect this divide of Big Winners – Big Losers.

3. Sharper Focus on Customer

Consumers habits are also going through an enormous change in the buying needs and practices, usage patterns, and purchasing decisions. Given the stress on wallets and perception of risk regarding employment, the definitions of what consumers want and their buying process and criteria are changing. With the scale of change in consumer behavior, The question that all companies and our own start-ups need to address is “Are we Future proof”.

Our companies are responding to these changes in several different ways. Here are some illustrative examples
Emergence of the first-time online buyers – Our companies are actively scouting digital footprints to activate consumers to make their first digital transactions. First time digital transaction consumer are increasingly from Tier 2 and Tier 3 towns and often profiles from the regular customers
Sharper focus on the consumer value proposition – consumers are increasingly focused on value and recognize the offerings of brands even more. Price points and size of packs are changing in the online commerce world. Emphasis on hygiene and freshness by our food delivery brand Biryani in their customer communications and its contactless delivery options. Also providing ‘Live” video feed of kitchen to back-up the hygiene
Spotting changes in consumers buying behavior such as shift in spikes in purchases and making available deals at different times of the day
On the B2B businesses, sales cycles are often shortened for critical requirements, customers are able to execute without face to face pitches, expectations for omnichannel functionality has widened.

4. Resilience and Agility

Ultimately, it is human and organizational factors which determines, success of ventures. No better time to emphasize this than today.

In our observations, leaders and teams which have been resilient, have a team which is aligned and accepts and capitalizes on the change fast are on a much faster path to recovery and growth than others. Agile teams require alignment to a vision and an opportunity and wherever leaders can tap this energy to drive change and innovation. Teams need every ounce of energy to drive the changes and the grit and determination required to stay relevant and become winners in this crisis. The difference between great founders and their teams and average once will again reflect in the Big-Winners and Big Losers phenomena.

Navigating through these rapidly changing times is one of the biggest challenges that we all face. This is one of the biggest tests for IvyCap as a fund and we are preparing ourselves for it. I wish you all good luck in your journey ahead and hope that you make the right choices in various aspects of professional and personal life ahead.

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How did you start Singularity?

It was 2016 when we had quit our jobs and looking for a home in Bangalore, when we ourselves experienced first-hand the inefficiencies present in system. We had to wait almost 2 hours, for the agent showing us the house had misplaced the key and had to get it from a different location. This is when we realised this whole budget real estate sector is ready to be disrupted through new age IoT technologies. At the same time, this industry was quickly getting organized through major players like Nestaway, Oyo, Colive, Zolo entering the game and we knew for sure they would heavily benefit from centralised operations, enabled through IoT technologies. This is when we set out and started Singularity Automation to help these companies solve their operational inefficiencies through cutting edge IoT solutions.

What are some of the advantages of IoT automation in sharing economies? How does Singularity fit in here?

Shared economy has a lot of distributed assets and it becomes a nightmare to scale without having a centralised control. IoT can play an important part in this by giving real time data from the assets and use it to automate key operational tasks, thereby help increase efficiency and enhance customer experience.

With an increase in demand for contactless operation of devices, how does the market look like post COVID for IoT Automation softwares?

COVID has changed this industry forever, the focus has shifted completely towards hygiene, social distancing, sanitisation, and customer security. To help our clients, we have launched a new security product called SecurePass, a contactless access control system for any facility. It has a built-in temperature scanner to measure fever and a people counter to prevent overcrowding in buildings. The product is gaining a lot of traction not just in shared accommodation but also in real estate industry altogether.

The hospitality & co-working industry has been through a lot over the past few months, how has this affected Singularity?

Hospitality, Co-Working and Co-Living industry have been hit the hardest as people have moved to their hometowns before lockdown. The occupancy has drastically fallen, with most of the players at less than 50% of occupancy, which is not sustainable at all. This has reflected in singularity’s topline as well.

As people start moving back to the metros, it would be critical for these players to attract them to shift to their facilities by highlighting and marketing of their properties for hygiene and COVID compliance. Singularity is already helping them to achieve that with products like SecurePass. One of our client reduced their security costs by 80% by implementing SecurePass and replacing their security guards.

What is next for Singularity?

Singularity will keep developing it’s IoT platform to help their clients navigate these difficult times. IoT will help the industry to make their facilities more secure and singularity will be at the forefront of it

In October 2019 President Kovind unveiled the IIT Delhi endowment fund, the first endowment fund in India. The fund aims to raise $1 billion over the next six years and the fund will grow gradually with help from industry leaders and alumni who are now in senior management positions at companies in India and abroad. The idea of the fund was conceptualized and driven by Vikram Gupta (IITD Alumnus and Founder IvyCap Ventures) along with the IITD Director and Dean, and other leading Alumni. IvyCap continues to be an important force behind the fund, by reaching out through its Alumni network to the IITD graduates. The IIT Delhi Endowment Management Board today announced the appointment of Mr. Vinay Piparsania as its first Chief Executive Officer.

Vikram Gupta says “We are excited about the formation of the Board and structure of the IITD Endowment Fund. With the appointment of Vinay Piparsania the momentum will build up further. The idea that was seeded with the formation of IvyCap has finally taken its full shape. The core team of IvyCap coming from IITD feels proud to have contributed to this initiative.”

About Vinay
Vinay comes with a rich work experience of strategy, branding, innovation, and business development He will drive the vision of the IIT Delhi endowment fund to have a transparent structure and corporate governance model that will work towards building a relationship of trust and credibility with its Alumni through better communication and periodic reporting, through a professionally managed team structure.

Vinay comes with a rich work experience of strategy, branding, innovation, and business development He will drive the vision of the IIT Delhi endowment fund to have a transparent structure and corporate governance model that will work towards building a relationship of trust and credibility with its Alumni through better communication and periodic reporting, through a professionally managed team structure.

Vinay, brings close to 33 years of leadership experience across India, Asia Pacific, and the Middle East. Vinay is Consulting Director – Automotive, with Counterpoint Technology Market Research, a leading Asian headquartered research firm, focused on emerging technology, and is also founder and principal of MillenStrat Advisory & Research, specializing in developing strategies, focused on millennial customers. Vinay, with his deep operational and strategic expertise in the international auto industry, is a much sought after consultant, advisor, speaker, panelist, and mentor/coach across various industries and institutes. He is on the advisory board of several start-ups.

Based in Gurgaon, India, Vinay is a Mechanical Engineer from IIT Delhi (1985 batch), and an MBA from Tulane University, New Orleans, USA.