Given the events over the last week, concern about the global impact of coronavirus has shifted into higher gear as apprehensions about health and economic slowdown heighten. Oil prices are trading around 30% lower than a week ago, following a production dispute between OPEC members Saudi Arabia and Russia. And in India, a stressed financial sector has come under further pressure with the imposition of the moratorium on Yes Bank and the rescue spearheaded by the State Bank of India. All this built up to a manic Monday (March 9, 2020) as stock markets in India and globally were roiled; trading in the US market was halted shortly after opening as the Dow plunged 7.9%. Indian stock markets saw their worst single-day decline in absolute terms – the BSE Sensex fell 5.2%, that day. So, it’s not an exaggeration to say the months ahead look challenging.
So, what are the most important things for start-ups to bear in mind at a time like this?
1. Conserve cash: cash is king.
2. Revisit your business plan and all assumptions therein: in particular those relating to customer acquisition costs, sales cycles, supply chains and borrowing costs, where applicable. If you don’t already have a plan B, put one in place on priority.
3. Moderate your expectations, both, on timelines for fundraising and on valuations. Since late 2018, we have been advising our investees to assume a 9 month timeline for fundraising. The going will likely be further uphill.
4. Step up communications with your customers, particularly if you are expecting any disruptions in service/product. Customers will truly appreciate a proactive approach here and it will help build loyalty in the longer term.
5. Communicate with your team on how you are thinking about your business even as you continue to be thoughtful about their health and safety in handling Covid-19.
6. Strengthen your board or set of advisors with people who have managed businesses through multiple cycles.
7. Watch out for business concentrations: by customers, vendors, geographies etc. The Yes Bank episode has highlighted the importance of diversification even in bank accounts and UPI partners.
There is no doubt that firms that are better prepared will be better placed.
Circumstances like these also come with silver linings. Managing your costs offers real opportunities for operational improvements and not just layoffs. Slowdowns also reduce pressure on some costs (like rents) and the war for talent moderates. If you survive a crisis and come out stronger, competitive pressures in your sector too would have likely abated. And finally, the global VC industry has substantial dry powder – $189 billion (Pitchbook data, June 2019), and so, investors will be supportive and back businesses which are being run in a sensible manner.
At Omidyar Network India we are proud of our investees – you are working towards creating a meaningful life for every Indian. We want you to know that we are committed to your success and committed to actively helping and partnering with you in the weeks and months ahead.