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  • Vinay Nair

Survival & Revival of Startups post COVID-19

Updated: Jul 20, 2020

Almost all of the world’s organisations have felt an impact from the coronavirus pandemic and one of the biggest losers of the COVID-19 outbreak have been Early Stage Startups.

The ongoing forward momentum of our burgeoning startup ecosystem has taken a huge hit due to the pandemic. Startups are now struggling to survive in these turbulent times with negative impacts from the rapid spread of the coronavirus, affecting their business resources and sometimes even forcing the founders to rethink strategy or just pivot from their core business areas.

While some startups have benefited from this unprecedented event, others have had to face huge losses on account of the lockdown.

Founders are now facing a double edged sword with their current situation looking less attractive to prospective investors at one end, and a growing hysteria among consumers on the other side.

Until there is a vaccinated cure against the virus, the way forward is to navigate through the upcoming and unprecedented challenges and look for the best options to survive/revive from the incoming waves of coronavirus.


How can startups resolve their cash flow problems? 

Startups will have to be very careful with their cash reserves.

Entrepreneurs be needed to work on their cash balances, figure out what can be utilised for daily expenses and how much of working capital has to be retained to ensure sustainability of their business operations. Most of the early stage startups have low margins and therefore do not operate with too much cash in hand.

Established players among these startups might have to recalculate and find an acute balance between their revenue and expenditure. They may start with cutting down on variable expenses like salary, utilities, raw materials, etc., and try to renegotiate fixed costs like rent, utilities, among other things. However, laying off employees would not be the most viable solution, instead of that pay cuts and employee stock options will provide a more reliable and socially acceptable solution.

Workplaces are being substituted by virtual rooms, which can be a cost-effective method, but is not well suited to a startup where collaboration and proximity is key. 


How can founders plan around this uncertainty?

Startups need to keep check on the recessionary effects.

They need to prioritize amongst their target acquirable market as to what group of buyers are vulnerable and which group of customers can be retained.

Startups, in general are prepared to take on greater risks and therefore have some form of risk management capacities innate to their work culture. The pandemic being one-of-a-kind situation in itself, is generally not accounted for, which is making life as difficult for these new entrepreneurs. Most of these ventures are making a shift to digitisation to help avoid complete loss of business and retain their customer base. Taking such a new approach is perhaps the best way out for startups, as it can lead to the creation of a new revenue model.

Founders can also look at less explored option for their business model, for example a store-based venture could shift their entire operation online, thereby reducing costs and ensuring continuity.

Entrepreneurs also need to look at new technologies that would enable them to carry out business effortlessly during the pandemic.


Do Startups compromise on their values, and culture?

Startups forced to pivot, need to realise it was pro tem.

Eventually the pandemic will fade away and whatever steps the ventures create in the interim period, can be retracted to their original ideology.

But for the time being, startups need to come up with provisional and sustainable resolutions.

Founders could simply focus on earning revenue on their collaterals, for example they could offer their work force or equipment on a hire purchase basis.

This pandemic has also brought in new dimensions in the mentality of startup workforce. Startup teams had to adapt to the "new normal" created by the situation and they understand their performance is under a strict adherence and key to the overall survival strategy.

Hence, few compromises made along the way, may bear long term benefits to the overall culture of your startup workforce.


How can startups attract investments at current stage?

Startups that owe their success to the pandemic has potential.

The pandemic takes away a lot of opportunities, but at the same time it makes room for innovation as well. The current situation has created a sort of an opportunity bubble for entrepreneurs to come up with innovative solutions to current problems and to improve on the products or services being provided already.

For instance a ban on 59 chinese apps by the Government of India, last week saw an upsurge in emotions for indigenously developed applications and a rise of parallel apps developed locally. These ideas does attract investments from investor syndicates, following a herd mentality. And also sends a positive signal within the startup ecosystem providing a boost to entrepreneurship.

The pandemic has also opened up a huge gap in the healthcare segment which can be tapped by startups that are involved in healthcare and hygiene services.

Fintech is another sector that has gained immense popularity in current times and offers a lot of potential to grow even during covid times. A lot of fintech startups have been doing their fundraising rounds lately, and can be considered as one of the favorable sectors for investment.

Other Domains like biotech, edutech, artificial intelligence, blockchain technology, delivery, mobile applications, etc are few potential segments.


Will Startups face funding winter in a post-covid world?

Startups will require capital to be able to sustain their business.

Startups that require a couple of rounds of funding to grow and really re-establish themselves may always approach Venture Capital Funds and Angel Investors, who are always on the lookout for innovative and profitable startups.

It is expected, that a post-covid world will bear witness to a shift in startup investment strategies.

Investors will look at increasing their ticket size, risk appetite and find new investments to late stage ventures returning more secured returns.

For an early stage investor, committing to their pre-existing investments by replenishing the need for capital in such portfolio startups will ensure that those businesses stay afloat. They can look to book additional equity, in case the additional funding requirement is substantial. So, Investors will be wary about their new investments and would not mind holding off for a while until the market is showing signs of recovery.

Even though investors will look to buy cheap equity, they will now limit their investments to businesses that can flourish in a growing and a contracting economy.

Well established startups that are way past the seed stage and able to survive the current phase with positive cash flows, will be the most attractive segment during the pandemic season as they will pose the least amount of risk for investors.


Final Thoughts

Investors will look at unmatched innovation in these times. They will always look at creating value for their funds and might not be very sympathetic to the needs of borrowers in such a situation. Startups that are not functioning currently, can take this time to look at things in a different way.

This might be one of the most difficult times for early stage startups, but all hope is not lost as the world economy will not succumb and move towards achieving pre- covid level benchmarks. Startups will have to face the reality and not lose faith in their business. Innovation is key in these tough times, but while adapting to new approaches, ventures should not forget their original problem statement.

Investors will provide funding, but it may not be that consistent.




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