Companies

Investors warn start-ups to prepare for the worst after coronavirus lockdown

Prashasti Awasthi Mumbai | Updated on April 02, 2020 Published on April 02, 2020

Prominent investors of the Indian start-ups sector have cautioned them to be prepared for the worst as it could be challenging for them to secure additional money for the next few months amidst the nationwide lockdown due to coronavirus, TechCrunch reported.

In an open letter to start-up founders in India, ten global and local private equity and venture capitalist firms including Accel, Lightspeed, Sequoia Capital, and Matrix Partners cautioned that the unforeseen changes to the macro environment could impede start-ups to close their next fund raising deal.

The warning came three months after start-ups witnessed record-breaking growth in 2019 and raised $14.5 billion last year.

The firms, which included Kalaari Capital, SAIF Partners, and Nexus Venture Partners — some of the prominent names in India to back growing startups — asked founders to be ready to witness a plunge in the profitability index and have a 12-18 month runway with what they raise.

The letter read: “Assumptions from bull market financings or even from a few weeks ago do not apply. Many investors will move away from thinking about ‘growth at all costs’ to ‘reasonable growth with a path to profitability.’ Adjust your business plan and messaging accordingly.”

According to the Techcrunch report, the letter is an indication to investors losing appetite to invest in the current scenario.

Indian start-ups participated in 79 deals to raise $496 million in March, down from $2.86 billion that they raised across 104 deals in February and $1.24 billion they raised from 93 deals in January this year, research firm Tracxn told TechCrunch. In March last year, Indian startups had raised $2.1 billion across 153 deals, the firm mentioned.

The lockdown, as you can imagine, has severely disrupted businesses of many startups, several founders said.

“Through the lockdown, most businesses could see revenues going down to almost zero and even post that the recovery curve may be a ‘U’ shaped one vs a ‘V’ shaped one,” the investors mentioned in the letter.

Published on April 02, 2020

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