Don’t let COVID-19 overcome you -Stay Positive, Stay Relevant!!
An open letter from an Indian seed VC
We hope at this time, that you and your loved ones are safe.
The world has never seen a global pandemic on this scale. If we are not infected by COVID-19 and have shelter and resources, we’re the lucky ones. We should all know that this is a luxury for many around the world.
A lot has been said & done about how start-ups should react & mitigate the crisis, how to cut costs, increase runway etc. We assume that most of you have already done this and hence will now focus on sharing our and our portfolio companies’ experiences in staying positive, looking ahead and trying to stay relevant.
We are a seed VC fund; as first-time fund managers, we are as much entrepreneurs as the early-stage companies we invest in. Some of the things we have realized in the last 6–8 weeks are as follows:
- If this had to happen, this is possibly the best time it could have happened to us; If this had happened a year earlier, our fundraise would have been disrupted, if this had happened a year later our portfolio companies (and we have invested in six companies in the last 8–10 months) would have had only half the runway that they have today. Does it mean we are out of the woods? No, but it makes us a feel lot better and enables us to be positive!
- Four out of our six portfolio companies are pre-revenue. A seed fund’s biggest issue is that its companies are still looking for product-market fit and still looking for revenue, hence the investment risk is high compared to a later stage fund. However, the advantage is being early stage many of our companies have little to no cost build-up and hence a lot easier to re-calibrate and increase runway.
- Our LPs are a combination of individual investors and family offices with the former being the larger component. We were anxious about their mood given that we represent the high-risk portion of their asset allocation. A lot of them turned around and said, “Hey, your investments are inherently for the long term. So as long as you can ensure survival of your companies, I am less worried about this investment rather than some of my public market investments!”
Thanks to all of the above, the spring was back in our step and we have begun to think a lot more positively. We see the following opportunities:
- We have a large LP network that is spread across multiple geos, industries and functional areas. By continually talking to them, we think we will be able to get a close glimpse into what is happening and translate them into insights for our portfolio
- We believe the larger funds have a lot more on their plates in terms of existing portfolio. We believe this should enhance our ability to access interesting investment opportunities. We have begun to see early signs of this and we are trying to capitalise as much as possible on this trend
- We are an enterprise tech-focused fund and the crisis we believe throws up many interesting areas that we are tracking and looking for potential investment opportunities. Some of them are- Digital enablement for micro enterprises, Enabling & engaging a Remote workforce, Cloud ecosystem solutions, enabling local economy & community commerce and of course our continued interest in Industrial Automation & Robotics, an area where we have already made two investments.
Moving on to learnings from some of our portfolio companies…
- Adapt your play to the focus on capital efficiency and cost management
- Use this opportunity to build out ‘local supply chain’
- Accelerated discovery of product-market fit
- Seek out opportunities to help communities and businesses in distress
1. Adapt your play to the focus on capital efficiency and cost management
One of our portfolio companies has created significant inbound pipeline by marketing a particular module of their wider enterprise solution. This module was priced lower than its competitor and enables its customers to significantly reduce operating costs. More importantly, given the design of the product it was plug & play and an easy to onboard solution without impacting operations. The strategic intent is, of course, to get into these clients, build stickiness and be able to drive adoption of the wider full enterprise solution.
So for all of you out there, think hard! Is there a component of your solution that enterprises can use to save cost? If so, now is the time to focus on that to be able to create new relationships and build more relevance.
2. Use this opportunity to build out local supply chain
Three out of our six portfolio companies have hardware as an integral part of their product offering. These companies have had to move fast and build out the local supply chain given that cross border movement of components while not restricted is unpredictable and fraught with potential delay. While the local supply chain & vendors may not have been their original choice, the whole process has been revealing & insightful and some of the biases about the local supply chain have gone away. They are extremely resourceful and given the situation are a lot more flexible & agile thus enabling our companies to get back on the ground faster than expected.
So for all of you that have hardware and dependent on China, Taiwan and Europe, this is the time to challenge your biases and assumptions. It may not be a choice in the short term and you may make some pleasant discoveries along the way!
3 . Accelerated discovery of product-market fit
Some of our companies are at an early stage and were experimenting with product-market fit and understanding relative value of their proposition to different industries & sub-segments. In one of our companies’ case, the crisis has enabled them to sharply understand which industries & customer segments are showing more interest and also what are they seeking out as solution elements and what is the value proposition. We believe that without the crisis this would have taken a lot more time; Seemingly in the crisis, everyone is a lot more sharper & focused. You discover interest faster and you are shown the door also a lot faster!
So do think about this aspect and push on with your potential target segments. The feedback that you will get from clients in these times is valuable, as it is most likely authentic and more importantly quick!
4. Seek Out Opportunities to Help Communities and Businesses in Distress
A lot of you may turn around and say that given the nature of business you are in there is not much of the above three you can do and hence things are looking dark. Well, that might be true but this pandemic is a great time for you to step up and help your communities and other businesses in crisis.
Can you and your teams (while keeping yourselves & your families safe) do something that could help the community or maybe other businesses? You might be an enterprise SAAS company but maybe there is a part of your solution that you can strip and offer to a certain segment of direct consumers. Maybe you can partner with another business and support them if they are struggling. If not anything, maybe you can help out your communities! The idea is to build new relationships that may prove to be very useful in the months & years to come. You will be remembered not just as good entrepreneurs but also as human beings with empathy! That kind of recall will be invaluable for you and your businesses.
If you’re struggling at this time, reach out to your professional and personal networks for help; Reach out to your investors & advisors and get their inputs. If you think we could help in any way, do feel free to reach out and we would love to chat. These may be hard times ahead but this crisis will pass at some point.
We leave you with the inspirational words of a man who survived the brutal horrors of a Nazi concentration camp and lived to tell the tale.
“Everything can be taken from a man but one thing: the last of the human freedoms — to choose one’s attitude in any given set of circumstances, to choose one’s own way.” ― Viktor E. Frankl, Man’s Search for Meaning.
Arali Ventures is a pre-seed, seed-stage VC from India, investing in entrepreneurs building enterprise-tech solutions for the world. We help shape their journeys through product-market-fit and beyond and scale the offerings to greater heights.
Keep circling back to read our perspectives on enterprise-tech, our portfolio, seed stage investing in India.
