Jyoti Bhandari, Founder and CEO, Lovak Capital
Jyoti is a seasoned private/investment banker and a financial wellness expert with more than two decades of work experience in rendering advisory services.
The big idea, from the garage to Wall Street, a journey well-travelled by entrepreneurs had people who believed in the idea and supported them from the beginning. Our country, an emerging land of entrepreneurship, is buzzing with great start-up ideas every hour, and every entrepreneur is dreaming to take his idea to the world, from local to global markets.
Venture capitalists are not just filling in with the financial resources, they are also helping trigger the growth of the company by improving the product suite, bringing in new technology by monitoring controlling the revenue model and thus enhancing the competitiveness of start-ups. Post Covid-19, start-ups are distressed due to not just lack of financial resources, also impacted by the change in the business environment with new consumer behaviour and practices, from working from home to consumption of products and services. While there have been enormous challenges, the new post covid world has flooded the desks of venture capitalists with ideas with the potential to become unicorns. The fund raised through venture capitalists mainly goes into creating the structure of the company and making it an opportunity to take its flight to wall street. It entails building the infrastructure, setting up processes, bringing in the right set of talent, economies to scale and making the product available to target market segments. Here are a few factors that make venture capitalists working as catalysts to start-ups:
Bridging the Financial Gap
With the current pandemic led economic downturn, start-ups are facing tremendous challenges to stay afloat and manage their working capital. Venture Capitals can facilitate these budding companies who are set to change the world and meet their goals.
Although commercialising the idea is one of the key roles played by venture capitalists, they also bring in professionalism in the company which is required for the next phase of growth. Venture Capitalists like to stick to their core investment rationale and usually invest in the sector they understand well. Their team brings in knowledge and experience to help the start-up strengthen the business model.
“VCs will focus on their local markets as there still will be restrictions on travel and people adapting to new digital consumer behaviour in both professional and personal sphere from education, banking transactions, health care to dining habits”
Invested interest by a venture capitalist will bring in the visibility of the idea and will help reach their target market segment. Since most of the start-ups are struggling for survival due to the post-pandemic downturn, an interest by venture capitalists can help them both in growing their sales and raising funds.
From the pressure of shutting down to compromised valuations, start-ups have to rejig their business models and scale down their operations. Venture capitalists funding in these times could bring in sustainability to sail through these uncertain times. Start-ups already funded in the last one year have been able to sustain in these times as venture capitalists have been focussed on their portfolio companies instead of scouting for new ideas.
Start-ups benefit from the global connections of venture capitalists, enabling them to position them in the international markets from just being the homegrown brand. In these times of changing consumer and business behaviour, some start-ups with the right product can definitely take advantage and reach out to global markets.
From close to $6 billion in the last quarter of 2019 of strong investments by venture capitalists to coming down to nearly half in the second quarter of 2020 in the post covid economy as per KPMG’s report, start-ups are going through challenging tough times to get venture capitalists signed up. It is primarily due to a change in consumer behaviour and requirements resulting through work from the economy, travel restrictions, and minimalism.
Though there are various deal structures available today due to consolidation in industries, a start-up should look for a venture capitalist providing downside protection and medium-term commitment with both resilience and deep pockets to tide over turbulent times and helping them come out as a winner.
As per recent report by KPMG Q2’20 – Venture Pulse Report, VC backed companies raised $16.89 billion in Asia across 1011 deals with biotech companies taking a fair share $3.7 billion. While industries and companies are catching up from Q1 & Q2, 2020 with economies opening up both locally and internationally, Q4’20 should show some light in the day for start-ups facing challenges in raising funds and scaling up. VCs will focus on their local markets as there still will be restrictions on travel and people adapting to new digital consumer behaviour in both professional and personal sphere from education, banking transactions, health care to dining habits. This has definitely compelled the companies to adapt and shift to cater to new ways of consumption behaviour across sectors. As the current trend shows, start-ups with a go-local motto and doing well by doing good for societies, adding value to work from economy, environment, healthcare and education are attracting venture capitalists to help them commercialise the idea and making them a sustainable opportunity at the global platform.