With the COVID-19 pandemic bringing the world to its knees, the startup ecosystem is definitely feeling the heat. While some of the sectors like EdTech, essential delivery, pharma, BioTech, fitness apps, and remote working facilitators and doing well, travel, fashion, entertainment, logistics, real estate, aviation, hospitality, and manufacturing have taken a back seat.
Lockdowns, supply chain disruptions, strict checks on global and even local mobility, reduced demand for non-essentials, and an uncertain future is hurting the ecosystem like never before. With reduced or virtually non-existent cash flows, some of the startups are at the brink of a shutdown. It is definitely now a “survival of the fittest” scenario.
As per a recent Forbes report, “The biggest impact has been in China since COVID-19 hit there first. In the short period from November-December 2019 to January-February 2020, venture investing fell off a cliff in China. Just since the beginning of this year, Chinese venture investing has dropped by over 50% relative to the rest of the world.
If other parts of the world experience declines of similar magnitude, $28 billion in startup investment will go missing this year alone.
Already, according to Dealroom, since the end of January, tech and internet companies in Europe have lost almost €400 billion in total.”
Governments around the world have come out in support. However, the real impact is yet to be witnessed.
As per a BBC report: “The UK government has announced a £1.25bn package to support innovative new companies that are not eligible for existing coronavirus rescue schemes. It will match up to £250m of private investment and add £550m to an existing loan and grant scheme for smaller firms that focus on research and development. Adding it up, that totals £800m of new money to support fledgling firms.
Chancellor Rishi Sunak said startups would help power the UK’s growth after the coronavirus crisis.
Though there are strings attached, the package has been broadly welcomed by the entrepreneur community.”
The VC community is also doing its part in ensuring that the ecosystem sustains itself amidst the COVID-19 crisis, and emerges as a winner. The impact on the investor community is largely dependent on the portfolio companies and how the pandemic impacts them. It is also a good time to introspect and strategize investments for the future.
VCs have been quick to get onto the advisory role and advice startups on how to stay afloat. Some of the guidelines across sectors have been to stop marketing spends, and reduce rentals, general, and administrative expenses. Sky-high wage bills are also being analyzed, and in some cases, pay cuts are being proposed. Cash is the king, and the focus is on eliminating any unnecessary spending.
Adaptability is the key, and the startups have been advised to be prepared for any kind of disruption with a disruption mitigation plan. The Health and safety of all stakeholders have been given prime importance, followed by business continuity plans.
Founded in 2016, RHL Ventures is a multi-family private investment firm headquartered in Malaysia that champions growth for the best businesses in Southeast Asia. Currently led by Rachel Lau, Raja Hamzah Abidin, and Jo Jo Kong, the firm pools its extensive regional experience in investments, corporate advisory, and capital markets to drive transformative growth for ASEAN-linked startups as well as small and medium-sized enterprises.
Rachel Lau: It opens our eyes in terms of what businesses are able to pivot and how adaptable founders are to the COVID-19 situation. More than not, we are able to stress test the companies that we are invested in; a lot of them are fully adaptable and have found new ways to monetize. For us, there has been no major impact; we have traditionally been more conservative investors, so a pragmatic view on investments has now proven to be useful.
Rachel Lau: It provides a better opportunity to invest in businesses that have really shown resilience in a peculiar time like this.
Rachel Lau: It’s been interesting working from home and speaking to investors and startups offline. So far, everyone has adapted well, and it’s been a real blessing to see how smooth the operations can be.
Rachel Lau: There will be more pain before it gets better. A V shape recovery is unlikely at this point, given the full economic impact from a global lockdown has not been fully accounted for.
Rachel Lau: History will tell us when we look back, for now, it’s a little too early to tell.
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