Seed Stage Investing in the POST COVID world
Three of us seed-stage tech investors decided to some crystal ball gazing about how the POST — COVID world will be and how it will affect our investing outlook.
For the analytically minded, it is based on minimal training data, has confirmatory, negativity biases and very likely susceptible to bandwagon effects.
Still hoping it provides an interesting perspective to founders & entrepreneurs; like the saying goes “ All models are wrong, some are useful”
What aspects of your investment strategy do you expect to change in Post COVID world?
Vinod Shankar
We will continue to focus on pre-seed and seed-stage investments. Given that we have diversified focus areas like Fintech, Health Tech, SaaS, Consumer Internet, & Deep Tech; we expect to be more focused on a few areas and themes within where we have a clearer view of consumer, client behaviour. Some of the new themes that we are actively looking at in the post COVID world are changes than can sustainable even after COVID like remote, healthcare, productivity.
Arjun Rao
Don’t expect a significant departure from our investment thesis, we will continue to look at seed and pre-series A stage investments. We don’t envisage any departure from our normal investment size as well. While we expect that deal momentum to slow down slightly, it’s more a function of where we are in our fund life cycle and also the fact that we are more focussed on helping with our portfolio right now. Also, administratively, the process might take longer given reduced face-to-face meetings, remote due-diligence etc.
The other important aspect is that our bar has gone up now, we will be clearly looking to invest in exceptional founders and ideas in these times.
Arun Raghavan
We will continue to look at seed stage opportunities in enterprise-tech. We don’t see a slowdown in our investment strategy for the year — either in terms of number of deals or amounts invested etc. We believe that there will be good opportunities in situations like this, we intend to capitalise on them.
What aspects of seed-stage investing will change in the next 1–15 months *
Vinod Shankar
Over the short term, we expect to co-invest a lot more, as there is a clear need for the start-ups to be well capitalised in order to achieve PMF. We don’t expect any drop in valuations at the seed stage, later stage ( series A and above) might see a drop in valuations in the short to medium term.
Arjun Rao
We expect time to decide to increase, as our efforts, like most VC’s, are more focussed on working with portfolio companies.
Arun Raghavan
We believe that cash efficient business models will get more attention, the days of cash-burn to grab market days are gone, at least for the foreseeable future.
What, in your opinion, are the deep-tech themes that would be interesting in the new world. Can you describe your hypothesis around these themes?
Arjun Rao
2 key themes that look interesting: 1) automation driven by robotics across a variety of use cases/industries, 2) AI for healthcare will lead to a lot of innovation in diagnostics/prognostics
Vinod Shankar
Deep tech themes which are capitalising on changing consumer behaviours will be interesting, but at the same time, these have to be deep and sustainable changes for the long run
Arun Raghavan
We believe deeper tech solutions that help enterprises innovate in manufacturing, supply chain will become interesting. I also believe there will be an increased willingness to spend on diagnosis tools in the healthcare side.
What, in your opinion, are the enterprise-tech themes that would be interesting in the new world. Can you describe your hypothesis around these themes?
Vinod Shankar
Remote, productivity and efficiency tools are themes we are keen to take a look at. In a new world, we expect more people to take up projects for passion and which would convert into full-time work as they progress.A new audience with time on hands will need tools to work with. No or low code tools/platforms would emerge as big winners.
Arjun Rao
- Intelligence tools across enterprise functions to drive insights for revenue growth (Sales, customer success, marketing etc.)
- Tools to enhance developer productivity and collaboration (more so now with remote becoming the new normal)
Arun Raghavan
A few of the themes we are looking at closely are “Managing a remote work-force”, “Increasingly risk-aware and conscious enterprise”, “Digitisation of enterprise functions”, “Local economy and community commerce focussed initiatives”, “cloud eco-system plays”, “automation across enterprise value-chain”
What is your view on startups developing solutions for cross-border clients? Do you continue to see opportunities for them in the new world?
Arjun Rao
Cross border theme will continue to grow, but for the next 1–2 years large Enterprise focused cos will have challenges in f2f field sales-based approach; products that can be sold remotely with simple digital onboarding/support will work better.
Vinod Shankar
Assuming the changes due to COVID are not for the long term, the view has not changed with respect to cross border solutions. In our early interactions, we see this only augments the India story, where the physical location has become near irrelevant.
Arun Raghavan
We continue to believe in Build from India for the world. However, it is a function of which industry segments, geographies the startups are serving, how well the economic recovery is. Startups serving sectors like Travel, transportation, offline retail, hospitality will have to brace for a prolonged winter. We don’t believe movements like deglobalisation will have a significant impact in the medium to long term. It is more likely to take decades to unwind if at all.
Do you see continued interest in startups that service SME’s/MSME businesses? what type of offerings will be of interest to this sector?
Vinod Shankar
We see this sector could be hit badly and adoption of new tech solutions would be weak and would stay away for a quarter or two before clarity emerges.
Arjun Rao
Given the crisis SMEs as a sector will struggle for some period of time, which means their ability to spend more on newer tech products will be limited. Only products that are business critical will thrive as opposed to good-to-have products.
Arun Raghavan
The SME/MSME businesses are the hardest hit and will take time to recover, however we believe that governments will provide the sector with significant stimuli. SME’s/MSME’s who emerge will focus significantly on digitisation of processes. B2B marketplaces that provide SME’s/MSME’s access will be interesting
What is your message to budding entrepreneurs, founders just starting off now on their entrepreneurial journey?
Vinod Shankar
Think frugal, develop resilience and path to profitability. Build a culture that would last, the current crisis is a tremendous opportunity to re-think and adapt and capitalise.
Arjun Rao
- Solve a core business need with your product, not a nice to have for the customers
- Validate your core product use case with a handful of prospective customers, do this before building many features
- Build capital-efficient businesses with frugality in all aspects, there will have a high bar for the capital
Arun Raghavan
Customers today are looking at solutions that can provide quantum improvements to their lives; marginal improvements won’t cut it. If you have ideas that can do that and are willing to be patient and slog it out, now is a great time to start. Talent, funding, resources are more readily available for good ideas.
Arjun Rao Vinod Shankar, appreciate your time and effort in helping to put this together.
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