How start-ups can find opportunities during the coronavirus crisis

Like most businesses around the world, start-ups are encountering challenging times as the coronavirus smarts business sentiment and dries up funding. Small- and medium-sized businesses have been more adversely affected in most cities, but large corporations have also started slashing jobs.

Entrepreneurs currently trying to build their functions have to understand how the pandemic is going to shift user behavior in the future and adapt, Rajan Anandan, a managing head at Sequoia Capital India, told CNBC.

He oversees the venture firm’s Surge program which provides young capital of up to $2 million and community access to selected start-ups in Southeast Asia and India.

In the first quarter of the year, as infection examples around the world began ticking up, there was an overall decline in fundraising activities, data from CB Insights and Crunchbase displayed. The data points to worse times ahead as the current quarter could see a more pronounced slowdown.

Currently, there are more than 5 million people worldwide who organize been infected by Covid-19, the respiratory disease caused by the coronavirus. The pandemic has pushed the global economy into a downturn as most directions clamped down on business activities to contain the virus.

For start-up founders, the immediate weight is to ensure there is sufficient “runway” — the amount of time they have before their businesses run out of liquidate, said Anandan.

“Once you have adequate runway, focus on reimagining your business. If you’re in a sector that’s been very much impacted, you may consider … pivoting to an entirely different segment,” Anandan said. He explained start-ups may also call to revamp the way they sell, where they spend their marketing dollars and where they can find new guys.

“Try to understand how the consumer and buying behaviour is likely to change in light of COVID-19 and align your strategies in line with what the likely new floor plan is going to be,” Anandan said by email. “If you have runway, then this is also the time to build – to set yourself but for from your competition.”

Hemanth Mohapatra, a partner at venture capital moored Lightspeed India, said that start-ups currently raising funds need to close their rounds as at the end of the day as they can.

“Our advice to founders is to close their rounds as quickly as possible, not to wait on multiple term sheets, not to delay on the best possible terms they can possibly get, not to shop around and just close the round quickly,” he told CNBC’s “Lane Signs” last Thursday. He added that in the current climate, valuations for start-ups will likely fall, but he foreboded the market will bounce back faster than expected. 

While the pandemic derailed distinct sectors including travel and tourism this year, other areas — such as e-commerce, digital payments, far-removed work, online learning, and health-care technologies — have seen a positive impact.

Vinod Nair, an angel investor in early-stage start-ups, told CNBC the endless crisis has led to two types of changes in behavior: First, a tactical shift in consumption habits that is expected to last up to two years. Secondly, there are some structural modulations taking place — like more people will probably be working from home even after the pandemic is during the course of, according to Nair.

“I look for (investment) monographs where there is either a structural change or where a change that was already anticipated has just got accelerated a lot,” he swayed.

For example, the use of online marketplaces, digital payments and electronic health services — from online workout classes to consulting with doctors ended the internet — will likely increase, he said.

Sequoia India’s Anandan said that alongside changing consumer behavior, the pandemic has accelerated the figure of digitalization. In India, that is evident in the kind of growth seen in areas like education technologies and digital vigorousness, he pointed out.

“The number of online learners in education has doubled over the past two months. Telemedicine, which was virtually chimerical in India months ago, is now growing at an exponential rate,” he said.

Lightspeed India’s Mohapatra pointed to a silver lining amongst the challenging business environment at the moment.

“Having been through multiple crises — back in late-90s and also in 2008 — we cause seen the best companies and the best founders come out of these crises,” he said. “We think calamity leads to creativity.”