COVID-19 is taking a toll on dealmaking globally and India is no exception. In February, for instance, risk capital investors recorded a 24-month funding low, investing $1.7 billion in Indian startups.
In contrast, private equity and venture capital firms had invested as much as $2.8 billion in India in February last year, according to data from the Indian Private Equity and Venture Capital Association and consulting firm EY.
“Yes, transactions are taking more time… New discussions are not starting, except in rare cases,” said K Ganesh, serial entrepreneur, partner of GrowthStory.in, and promoter of online grocery store BigBasket, healthcare provider Portea Medical, and foodtech startup HungerBox. “Not just because of on-site due diligence getting delayed but also because everyone is busy handling some urgent priorities on their end. People are trying to close existing deals,” he said in a chat with DealStreetAsia.
Ganesh set up GrowthStory, a venture builder platform, in 2011 to focus on next-generation businesses. “The problems [that these companies are trying to solve] are everyday issues that consumers face in their lives surrounding core sectors such as grocery, food, healthcare, housing, among others,” he said.
“The idea was to look at a parallel entrepreneurship model, similar to the Rocket Internet business model. We look at next 5 to 10 years, what are the big themes, where is the maximum pain point, where can we build large businesses and create value.”
Today, Ganesh is also the promoter of Bluestone, an online jewellery store; HomeLane, an interior design startup; Housejoy, an online service provider that caters to all home needs; food tech startup Freshmenu; and Verloop.io, a conversational platform, among others.
“The challenge today is keeping track of changing consumer behaviour. Most of these businesses are pioneers and have no established role models to copy from. The talent pool has to be created from scratch, business practices have to be learnt and perfected and there is no prior playbook that can be copied. This means lots of mistakes, trials and errors before we come up with workable solutions. So it needs patience, stamina, capital and persistence.”
Among his portfolio companies, BigBasket recently made headlines for raising $50 million in debt funding from China’s e-commerce giant Alibaba. The new round came in shortly after the company raised $60 million as part of a new bridge round from existing investors Alibaba, Mirae Asset and CDC Group.
Edited excerpts of an interview with Ganesh:
You talked about mistakes, trials and errors that have helped you learn the way ahead. Can you elaborate some of them when it comes to your portfolio companies such as BigBasket, HungerBox, and Portea Medical?
Startups are all about imagining something in the future that does not exist today. We try to build a new reality that does not exist now – so often we stumble, learn, correct or to use the correct jargon, “pivot.” A startup’s success is not about how many times you miss but how you hit the spot and hit it big. So, we learn by mistakes, by trials and errors.
Hungerbox, which today is the largest B2B food-tech platform serving 7.5 lakh meals a day, started off as a B2C business model, aggregating food for office goers before we realised the need for that service and our ability to provide value and scale to a large company is very low. So, we had to change the founding team and the business model. Similarly, verloop.io, a B2B deep tech company specialising in AI/ML chatbot for sales and customer service applications, started off as a super-app for consumers in B2C model. Realising, it’s a non-workable model, we pivoted it to B2B.
In Portea medical, we started off as pure home healthcare company, but after understanding the patients’ needs, and gaps in the market, we transformed it into an out-of-hospital care company, consumer healthcare brand for all needs.
In all these cases, when we started, we did not realise the opportunity or the challenge of what we were entering into.
Moving on to BigBasket, the company recently raised $50 million in debt funding from Alibaba. Talking about venture debt in general, do you think it will become the lifeline for the burgeoning startup ecosystem in a pandemic-afflicted world?
Yes. I strongly feel venture debt as an asset class will see a strong rise and many companies will resort to venture debt or similar structure. Companies with multiple rounds of funding, many investors who have come in at different points of time, many funds at different stages of their life cycle in the cap table, previous round having been raised at a high valuation, uncertain future projections – all these challenges make it very difficult (for a company) to do a simple and straight round. Even a bridge or convertible round is a bit challenging.
BigBasket was recently in news for ramping up the hiring process for delivery and warehousing staff to cope up with the unprecedented surge in demand during the lockdown. How easy or difficult is recruitment at this stage?
Recruitment is not easy due to lockdown, lack of mobility, potential employees stuck in their locations, unable to move to towns where the employment opportunities are. However, once lockdown is lifted, there is a huge pool of resources available due to weak economic situations and a lot of sectors facing job losses.
COVID-19 has cast its spell on businesses alike. Its fallout is primarily seen on startups’ operational side. The other areas I would assume would include their fundraising aspects. Are these having an impact on their valuations?
Valuations will take a hit for most of the businesses, unless you are positively affected by the pandemic as in the case of online e-commerce businesses, healthcare, remote working tools like Zoom, etc. But this is not something to worry about, as these cycles of huge euphoria and bull run in valuation followed by deep gloom and doom, bear phase is par for the course, have seen it repeatedly every few years. What’s critical is to survive this period, ensure that you conserve cash, ride out the storm and are alive and kicking when things bounce back. As they say, when water is choppy, the fisherman tends to their nets. You will see flat rounds, down rounds, convertible at deep discounts to the next round, higher liquidation preference, seniority preference etc. for any money coming in which is fine.
How are fundraising negotiations taking place right now? Given that there is a halt to on-site due diligence, are transactions getting delayed?
Yes, transactions are taking more time. Not just because of on-site due diligence getting delayed but also because everyone is busy handling some urgent priorities on their end. New discussions are not starting except in rare cases. People are trying to close existing deals. Also, watching to see how long it will take to normalcy and what will the new normal be like. But this is a temporary phase. After this, things will bounce back to normal. Venture capital as an asset class will continue to attract capital, funds will continue to invest. Some business models will benefit; some others will face challenges in short to medium terms. But other than that, business, as usual, will return despite more realistic valuation expectation.
What do you think about the startup world after COVID-19? What are the biggest business learnings from this pandemic?
Too early to talk about impact and learnings. Still understanding the full story here. Too many variables, lot of unknowns to do any predictive modelling. Some industries like discretionary travel and tourism, cruise lines, holiday destinations, big bang events etc will see more disruption, lot more time to return to pre-COVID levels. Some other like online businesses will benefit as people prefer to shop online, spend time online. Online entertainment, gaming, telemedicine, out-of-hospital healthcare, home care, online food delivery will see a major increase in businesses.
Learnings will emerge. One obvious fact is for companies with a single source of business, revenue is at risk of disruption if another pandemic or black swan event emerges.
It seems that social distancing is here to stay. How does something as simple as that impact the work of a startup at the ground level? Will the extra focus on ‘safety’ give rise to operational costs? How will companies cope up with this?
Each company is impacted differently.
BigBasket has seen a huge surge in orders, lots of new users, panic buying leading to higher basket size, hoarding and stock-outs.
Due to work from home, Hungerbox has seen order volumes sharply declining but a huge interest in digital cafeteria solutions, an urgency to automate cafeteria operations, use of technology to plan, manage queues, enforce social distancing. So, new business closures have increased as everyone wants to implement digital, technology-based solutions.
Portea Medical has seen a lot of new use cases like home chemotherapy, home quarantine solutions, elder care at home services. Elective physiotherapy has taken a hot as people have postponed the services that are not essential. Telemedicine, teleconsulting have grown exponentially. In general, the concept of healthcare at home, avoiding going to hospitals wherever possible is here to stay given the challenges of infection, convenience and effectiveness of healing at home. This is the biggest structural change in healthcare delivery due to COVID- 19.
Portea Medical recently has launched an information and awareness chatbot on Cobot-19. It’s currently operational only in Goa. Do you plan to take the initiative pan India?
We have had an excellent response and very interesting conversations on Cobot 19 with Goa government. Launched also similar BOT for Indian High Commission in Canada – in Punjabi and English to cater to Indian origin folks in Canada and Indian students in Canada. We are learning from the chats and are in talks with a couple of other states for a similar initiative. The fact that India has been able to contain this is a welcome relief so far.