India Inc & COVID-19-Business Learnings For VC Ecosystem

Introduction

Venture Capital (VC) is a dynamic industry. It is an industry where changes happen not gradually but rapidly by the minute. With the advent of machine learning and algorithms, the venture capital business became even more tricky and lucrative, making both the investor and investee stand on their toes. And the strongest blow came when the global COVID-19 pandemic started. In the beginning, no one would have imagined that the pandemic would make such a big and drastic impact, not only on the type of investments made by venture capitalists but on the entire venture capital industry itself.

India is today one of the fastest-growing economies in the world. According to the Economic Survey 2020-21, the Government of India recognised 41,061 startups, which is a huge number. The interesting part is that most of them are turning to corporate venture capital (CVC) firms to fund their businesses. By the third quarter of 2020, as many as 39 Indian CVCs had invested in 144 Indian startups. Considering these numbers, it becomes even more important for India’s businesses to look at, analyse, and learn from the changes that the pandemic has brought about in the VC industry and the overall impact of these changes.

While talking to Ashish Sinha, Founder of NextBigWhat, Karthik B. Reddy, Managing Partner at Blume Venture Advisors, explained how the VC ecosystem could move forward in the post-COVID era.

Differences in the VC Ecosystem Before and During COVID-19

The venture Capital ecosystem in India has always been pretty competitive as well as lucrative. According to Karthik B. Reddy, most CVCs that invest in Indian startups are foreign-based. There are a very limited number of homegrown CVCs in India. And it is this fact that makes the system competitive at large.

The emergence of the pandemic has had an impact on the VC ecosystem globally. In the context of India, before the pandemic kicked in, more investments were made in the technology sector. But as the pandemic prolonged, a gradual shift could be seen from technology to the FMCG sector. This significant shift and slowdown in the funding activities was primarily the result of the fall in the rate of economic growth as well as nationwide lockdown.

So, during the pandemic, CVCs started investing more in companies dealing in products with higher demand and potential rather than those whose demand was low due to lockdown. If we look at this trend from a corporate lens, this change was quite obvious. When one invests in something, he/she would want a due and fair return on that investment. If ROI within the given period of time is not ensured, both the investor and investee are bound to bear losses.

According to Reddy, very few businesses in India are able to outlast their VC money, which is a very critical situation. If a company cannot outlast their VC money, it means that they are not growing as estimated and not earning enough profits, thus also adversely hampering the ROI.

The Post-COVID Scenario

One of the most shocking statements made by Reddy in the Indian context was that the Indian companies have mostly failed as far as returning the borrowed venture capital is concerned. What he meant is that most Indian startups haven’t been able to give good ROIs on their VC money. This, according to him, is something that venture capitalists will expect and strictly look at in the post-COVID era.

The key to higher ROI is doubtlessly apt planning and implementation of those plans to the tee to achieve business goals. The first couple of years immediately after the pandemic are going to be the most challenging ones. This is because everybody would be making efforts to stand on their feet again and to grab the most lucrative opportunities in the industry.

So, while competition is going to be at its peak, it would be extremely vital for businesses and VCs to be diligent and thoughtful. There is no doubt that it will be a race where everyone will run to win. Therefore, only the strongest, the cleverest, and the most attentive will emerge victorious and survive in the long run.

The Road Ahead

Moving forward, Indian entrepreneurs will need to work on the sustainability of their businesses. The most important thing to understand is that it is not just the job of the founder or the CEO to make a business successful. All the people, even those that are working at junior levels, matter. It is vital that each and everyone in the organisation takes ownership and responsibility of their work and achieve all goals together as a single unit or team. In simpler terms, teamwork is the key to success.

Today, most Indian startups tend to survive on their VC money. However, what India needs are companies, which can outlast their VC money by making profits and making their mark in the industry. So, when we speak of “India Inc”, and even global businesses for that matter, not just growth, but sustainable growth is required. And if you want to build sustainable businesses, now is the right time; there is no tomorrow.

It is, therefore, necessary that Indian businesses lookout for and suggest solutions rather than pondering on their problems. And this needs to be done as a team, not singularly. Asking for outside help for solving problems is not a bad thing, but depending on it is; this is something that India Inc needs to understand and implement. Identify your own problems and roadblocks and come up with solutions yourself. Only then, a good VC ecosystem can be built in India in the near future.