Venture capital (VC) investors have been cautioning startups to focus on profitability and contain rapid growth plans to tide over the crisis due to the covid-19 outbreak.
Leading VC firm Sequoia Capital (India) surprised everyone by announcing two new India-South-East Asia funds with commitments of $1.35 billion this July in the middle of a global pandemic.
Managing director GV Ravishankar, at Mint’s Pivot or Perish webinar on Thursday, said that while deal activity saw dropped in April and May, it picked up in June-July as initially investors were trying to understand how they should evaluate startups, while the latter were gauging the impact the pandemic had on their business.
“…While it was all about reducing costs in the first two months of covid, the next step was thinking about how do we assess and survive this period and build through the future. The startup world has evolved and adapted. We never give up and are constantly evolving, innovating and are thriving,” Ravishankar said.
However valuations and deal sizes largely remain unchanged, he said.
“It is interesting and surprising that valuations have not corrected that much but it also depends on the sector. For instance, edtech and healthtech valuations have corrected upwards, whereas for travel and hospitality, you need to forget the last round valuation and relook at valuations today,” he said.
VCs have shown a clear preference for edtech startups in the first half of 2020, with $795 million raised compared to $108 million in the year-ago period. It is the only sector apart from healthcare to report a growth in number of deals, according to data from Venture Intelligence research.
Sequoia’s Ravishankar said theoretically, valuations should correct as globally there is a lot of capital flowing in and tech-enabled sectors should see positive growth and acceleration.
“From our perspective there will be nothing dramatic (in valuation drops), we aren’t seeing any global trends also to suggest that,” he added saying, what we are looking is, in the next 12-18 months can we find great companies to invest in and invest in fair prices.”
He added that the current crisis is different from the global financial crisis of the past. While those were rooted in funding issues, the current pandemic is all about consumer demand problem.
However, it is clear that those who will survive and thrive are startups that take swift corrective actions, correct their cost structures, take tough calls like slashing salaries and thus have made their business more sustainable.
“They have gotten leaner, meaner, and better and this will make them sustainable companies post this crisis. I am optimistic that start-ups are doing the right thing and they will come out winners,” Ravishankar said.
The article was first published on livemint.com.