A dialogue between Startups and Investors to tackle and survive during the COVID-19 Pandemic
LightCastle Analytics Wing
April 22, 2020
In the wake of COVID-19, a large number of startups around the globe are either ceasing operations, laying off employees, or pivoting business models. Bangladesh is looking at its promising startup ecosystem severely suffering as the pandemic has significantly stalled consumer spending. With the downturn in revenue generation, funding will also be naturally delayed for the upcoming quarters. In the light of such events, investors and mentors are coming forward to offer guidance and support for the entrepreneurs to navigate through this upheaval. The dialogue session between startups and investors was one such initiative that highlighted a number of insightful points regarding the investment landscape, government initiatives, funding opportunities, investors’ sentiments, and the key roles of the enterprises during such tough times.
VCPEAB (Venture Capital and Private Equity Association of Bangladesh), Bangladesh Angels, and LightCastle Partners jointly organized the virtual dialogue session between some of the most prominent startups and investors in the Bangladesh startup ecosystem.
The discussion panel consisted of government bodies, angels, and institutional investors represented by:
Tina Jabeen, Investment Advisor of Startup Bangladesh
Nirjhor Rahman, CEO of Bangladesh Angels
Shameem Ahsan, Chairman of VCPEAB & General Partner of Pegasus Tech Ventures
Rahat Ahmed, CEO of Anchorless Bangladesh
Bjoern Strudder, CEO of Roots of Impact
Bijon Islam, CEO of LightCastle Partners (moderator)
Stimulus package and in-kind support for the digital ecosystem of Bangladesh
To tackle the COVID-19 pandemic and its economic repercussions, the Bangladesh Government has devised a stimulus package, as of now, the amount stands at around Tk.100,000 cr. The majority of the amount has been designed to support the export-import sector alongside SMEs and agricultural industries. Despite the large amount, none has been allocated for the startups and the digital Bangladesh ecosystem yet.
Hence, under the guidance of Tina Jabeen, LightCastle Partners has formulated a proposal with and on behalf of the startup ecosystem, to be presented to the ICT ministry, to let the startup ecosystem take part in the Stimulus Package and deploy immediate funding for the ones at need.
The main objective of the package will be to enable startups to clear out rents, payrolls, and stay afloat. Given Startups often do not directly operate with bank financing – and investors will at least take 6 to 12 months to bounce back and invest – we assume the startups are going to need support for 3 to 6 months of working capital.
The Idea Project of the government is in the process of providing funding to needy startups. Funds from Startup Bangladesh may also be allocated to give immediate support to the startups.
The top-tier essential startups would be high on the priority list in terms of need, impact, employment, and reputation.
Apart from financial aid, government initiatives like Hi-tech parks are willing to support startups with data center facilities, warehouse facilities, co-working spaces, and mentorship.
“Some principles stay the same – early-stage investing depends largely on the leadership quality of the founding team and now is the time to distinguish yourselves as a founder.”
– Nirjhor Rahman, CEO of Bangladesh Angels
“Investors will look for the ability of the startups to navigate through a crisis and also do the job previous funds were provided for.”
– Rahat Ahmed, CEO of Anchorless Bangladesh
“The funding scenario will drastically change and enterprises need to shift to profitability models from growth models to secure funding.”
– Shameem Ahsan, Chairman of VCPEAB & General Partner of Pegasus Tech Ventures
Future funding landscape for startups
Venture Funds and Investors understand the gravity of the situation and the fact that revenue generation is very likely to come to a halt for the next 3-6 months (or at least till the situation passes). The right investors wouldn’t raise questions regarding that, though what they would look for is the proper utilization of the existing funds and resources to navigate through the crisis.
Opting to show higher valuation should not be the prime concern when looking to raise funds, preferably having a qualified management team who are eager to grow collectively is critical for now.
In terms of long-term strategy, startups should look to pivot from growth models to profitability models because the post-COVID-19 scenario will be drastically different. A lot of the angel investors would not be willing to reward top-line growth unless it is of high quality.
It is the prime time to think about how to optimize the metrics – average basket size, recurring revenue, customer acquisition costs, marketing spends.
If there are any ongoing investment discussions, the wisest thing would be to secure the investment even if it is at the cost of a reduced valuation.
Going after impact investments like a catalytic fund or matching fund could be a convenient option for early-stage startups.
“Cash is King. The startups have to make sure that their cash goes the extra mile during this crisis.”
– Tina Jabeen, Investment Advisor of Startup Bangladesh
“Pivots of business models can also adversely affect the low-income vulnerable groups because organizations are going to shift towards the middle-income groups in order to survive. Biniyog Briddhi is focusing on trying to help these enterprises to stay focused on marginalized clients and beneficiaries.”
– Bjoern Strudder, CEO of Roots of Impact
‘Given the current scenario, even if there is a reduction in valuation it is better to secure the investment sooner than later.’
– Bijon Islam, CEO of LightCastle Partners
Key Advice for Startups
Roles and responsibilities for sustaining during and beyond the COV19 pandemic
Pivoting in such times is essential, but shifting to a business model (e.g. online grocery) just because it is currently thriving in the market is highly discouraged. As there are quite a few prominent players in the market, even generating profit for the short term is highly unlikely.
Focusing on cost reduction currently should be given more importance than raising funds because startups need to ensure they go the extra mile. Some of the key ways to provide cost reduction during the pandemic are – salary deferrals, lengthen payable terms, shorten receivable terms at discounts, and ESOP options.
Explore strategic partnerships among enterprises and work out ways to develop and support each other by interchanging resources without the transfer of any money. Arrange agreements to build products and services for both parties.
Startups should also be open to mergers and acquisitions if they believe it is the best option to keep afloat.
Working from home is going to be the new normal, and utilizing various co-working tools such as Slack, Monday, Zoom, and others will play an integral role in being productive and efficient.
The post-COVID market is going to be very different locally and globally, and thus a behavioral shift in the consumers is evident. Startups have to think and dig deep to figure out how behavioral and other changes will come and look for legitimate options of pivoting and how expanded services can be added. Similar to how Pathao and Shohoz are offering pharma and grocery products on their platforms.
Immediate and long term plans should be formulated from now on to ensure building brand equity and valuable consumer engagement.
Last of all, the employees who support the company during this unprecedented time, even with a pay cut, must be rewarded for their loyalty in the long run.
This was the first webinar of the dialogue between Startups and Investors series with around 100 participants and 2,000+ views over Facebook Live. To participate in our coming virtual sessions, sign up here.
This article was written by Mehad ul Haque, Senior Business Consultant, and Ishtiak Mourshed, Trainee Consultant from LightCastle Partners. For any queries, you can reach out at [email protected].
The LightCastle team has been analyzing the macro and industry level picture and possible impacts wrought about by the COVID-19 crisis. Over the following days, we’ll be covering the major sectors shedding light on the possible short and long term ramifications of the global pandemic. Read all the articles in the series.
WRITTEN BY: LightCastle Analytics Wing
At LightCastle, we take a data-driven approach to create opportunities for growth and impact. We consult and collaborate with development partners, the public sector, and private organizations to promote inclusive economic growth that positively changes the lives of people at scale. Being a data-driven and transparent organization, we believe in democratizing knowledge and information among the stakeholders of the economy to drive inclusive growth.