Coronavirus impact: Start-ups anticipate delays in funding, cash crunch

Indian start-ups are anticipating delays in funding this year, thanks to increasing travel restrictions and the slowdown of businesses across the world due to the novel coronavirus. Firms are now looking to close their rounds as quickly as possible or are banking on contingency plans.

“There was an investor who had engaged with us from October and we had our closing coming in,” said Ashwarya Singh, co-founder and CEO of Drivezy, a Bengaluru-based self-driving car rental start-up, explaining his experience.

The venture capital (VC) investor, Singh added, who had engaged with them for the past five months, was stuck in Beijing for the last 30 days and couldn’t travel to India to do the final due diligence, which led to him not being able to participate in the round.

“We had domestic investors in the round that covered up the majority of the part. We wanted him in the cap table, but we couldn’t do it this time. We had to take money from someone who we were not planning to. We had to use our contingency plan to close the round,” Singh said, talking about the Series C round that they had raised for Drivezy.

Due to curbs on travel, video and teleconferencing calls have replaced face-to-face meetings. Most companies abroad have asked their employees to work from home or remotely, which, in turn, is delaying decisions and the due diligence process in funding. And this, ultimately, is affecting the capital inflow to start-ups from outside India.

“We are trying to get as much funds as possible, as soon as possible,” said Anant Goel, co-founder and CEO of grocery start-up Milkbasket.

“We have some conversations going on, but the decision-making has already slowed down,” Goel said.

The government on Wednesday, announced that all existing visas, except diplomatic, official, UN/international organisations, employment, and project visas, were suspended till April 15, 2020. It also said that all incoming travellers, including Indians, arriving from or having visited China, Italy, Iran, Republic of Korea, France, Spain and Germany after February 15, 2020 could be quarantined for a minimum period of 14 days.

Typically after the Chinese New Year every year, March and April are very hot months for China’s VC system. A large number of Chinese investors visit India for their businesses, meetings, and follow-ups, which are completely missing this year, said Goel.

Top 5 countries for VC and PE investments in India

Source: Tracxn , As on March 11, 2020

Apoorv Ranjan Sharma, co-founder and president of Venture Catalysts, a seed investment platform, said start-ups looking for seed-stage funding are able to manage without a problem, because seed investors are mostly available locally and do not require to travel abroad for taking decisions.

On the other hand, start-ups looking for series A, B and C rounds of funding have been impacted, as such investments require several rounds of meetings and due-diligence between the investors and the co-founders, he added.

According to data from Venture Intelligence, a firm which tracks private companies’ investments, financials and valuations, in 2019, nearly $2.15 billion worth private equity and venture capital investments were made in Indian start-ups by Chinese investors and about $3.14 billion by American investors.

Minimising cash crunch

Start-ups are also looking to conserve as much funds as possible, by keeping their expenditure at a minimum level.

“We are trying to come to a level where we can have growth with minimum burns possible,” said Singh.

Goel, on the other hand, said that they have reduced their marketing expenditure and limited their expansion plans.

He also said that growth-stage start-ups get a bit of a buffer when compared with early-stage start-ups, but their pace of growth would slow down.

Early-stage companies will need to generate cash or partner with larger companies, said Paula Mariwala, co-founder and president of Stanford Angels & Entrepreneurs India, a venture capital firm that invests in early-stage companies in the country.

Funding alternatives

On the upside, this period could be an apt opportunity for start-ups to approach more Indian investors for funding.

“This is a good time to get Indian money into the account and target the large family offices in India and getting Indian money,” Sharma said.

Everyone is trying to conserve cash or close the funding round as soon as possible. Meanwhile, if there is an opportunity to engage with a domestic player who has a strategic interest in mind, obviously that’s much more useful and beneficial, said Singh.

“Indian VCs are sitting with a lot of cash, so they should step up and come up and take the companies at cheaper or attractive valuations,” he added.

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