Indian Start-up sector performed exceptionally in the year 2019, inviting a record number of overseas Investments. Seven unicorn start-ups emerged and four were publicly listed. 2020 started with immense expectations for the industry but funding took a major hit in May as the COVID-19 pandemic took over the country.
Funding in the start-up sector plunged by 81.1% in March, 84% in April and 57% in May according to data by Tracxn. The COVID-19 pandemic may force start-ups to rethink their business model and their management structures. With several sectors coming to a standstill, new ventures are facing a severe liquidity crunch as Angels and VCs are becoming extremely cautious regarding their spending.
Adapting to the changes – Consumer Behaviour
The biggest change has been seen in consumer buying behavior. Safety and hygiene have become a basic need, and online health services and fitness consulting have become essential. It is anticipated that washing hands and wearing masks will become a compulsion going forward and have already seeped into modern-day fashion. These changes have resulted in a drastic increase in online marketplaces, digital payments, and online consulting services.
The pandemic has also accelerated the pace of digitalization in the education industry which was already a booming sector at the start of 2020. These fundamental changes in consumer behavior and buying decisions are opening new avenues for start-ups to explore and may attract more funding.
Investors are showing more interest in start-ups that provide solutions to post-COVID problems using AI and machine learning. Start-ups need to revamp their product or service in a way that it integrates remote control, automation, and online feedback system. Ventures that have already built a base in avenues like Agriculture Technology, Remote Healthcare, Financial Technology, and Remote Education will be the highlight for Angels and VCs.
Structural Revamp of Businesses
There is a structural change in the working habits of people with employees expected to work from home even after this pandemic. This shift in structure has not only affected the accounts of most businesses but also affects the day-to-day operations. Start-ups that have been swift in taking their entire operations online are not only managing all their stake-holders virtually but have also managed to hire WFH employees.
New opportunities for Investors
Angels and VCs are focused on managing their current investment portfolio profitably, instead of making new investments. Therefore, it has become necessary for start-ups to conserve cash, as a lot of expenses are diverted towards COVID-related expenses. A number of investors are leaning towards investing in ventures that can provide COVID-related solutions. The spotlight is on tech start-ups especially in the FMCG industry who are providing essential solutions like grocery delivery, medicines, e-commerce, and even entertainment. There is an increasing demand for FinTech and AgriTech as countries move towards self-sufficiency and sustainable living.
Telemedicine, an industry that was almost non-existent before is now becoming the new normal for people seeking medical consultation, another new avenue attracting potential investors.
Video conferencing firms have tapped into a permanent customer base as companies are conducting meetings, pitches, and even recruitment activities online. Gaming, streaming, and entertainment are also seeing a significant increase in users and time spent on their platforms. New ventures emerging in these sectors will find several Angels and VCs interested in them.
It is very clear that in 2020, there will be greater emphasis on Start-ups that can sustain cash for longer and have higher contribution margins. Investors will focus on the cash flow and cash runway of new ventures in the post-COVID world.