Troubles in startup land

TILL THE MIDDLE OF LAST YEAR, Sandipan Mitra and Uttam Kumar, co-founders of HungerBox, a Bengaluru-based B2B food-tech startup, were confident that their four-year-old company would break even by March 2020. Unit economics were in place and the path to profitability was clear. Then, in late 2019, the company decided to make investments that would ramp up its services, add new business verticals, and explore overseas expansion. This, the founders knew, would mean a slowing down in its journey to break even. They were prepared for that. What they didn’t—and couldn’t have—foreseen was the delay that would be caused by the Covid-19 (novel Coronavirus) pandemic. Their break-even target is now March 2021.

“In the short term, seeing 95% of our business getting wiped [out] by a 0.06 micron character is no fun for any of us. In the mid-term, we’ll have to do a lot of tactical initiatives to reduce the overall impact,” Mitra wrote in an email to employees on March 26, just after India’s Prime Minister Narendra Modi announced a 21-day national lockdown to contain the spread of the virus.

Like many others, the founders look at the Covid-19 outbreak as an uncertain and unpredictable danger looming over the world economy. “When you know that business is going to go off the rails for two weeks or 20 days or two months, you can plan accordingly. Now, it is extremely difficult to engage in business planning as per convention,” says Kumar. As a result, they had to rethink their handling of 126 clients across 24 cities, and managing the back-end operations of more than 500 corporate cafeterias. (HungerBox offers end-to-end food-and-beverage operation management for its customers. Its technology focusses on solving problems in the institutional F&B space. In December, HungerBox raised $12 million from digital wallets provider Paytm and others.)

Prioritisation will be key over the next few weeks, says Mitra. For instance, “one of the things we have quickly done is absorb about 200 staff from our food vendors and brought them onto our payrolls”, he says. “We are deploying them in compliance with government guidelines at about 40 campuses across the country. They are on-site at client offices to ensure that their [the clients’] staff engaged in business-critical functions still have something to eat. Our staff are staying on campus.”

Mitra and Kumar can take solace in that they are not alone. Startups, worldwide, are struggling to cope with the pandemic-affected socioeconomic environment. Business operations, sales forecasts, headcounts and future funding, the Coronavirus crisis has changed it all for them. According to a CNBC report dated March 31, more than 40 startups in the U.S. operating in areas such as hospitality, meal delivery, transportation, and artificial intelligence cut approximately 4,000 jobs in March as businesses struggled to stay afloat during the outbreak.

India, too, seems to be heading in the same direction. Experts say that all startups are in cash-conservation mode. This will lead to job losses, pay cuts, and deferring of increments.

According to media reports, online insurance startup Acko laid off about 45-50 employees to reduce costs while New York-based travel firm Fareportal cut more than 250 jobs in India in March. Travel portal MakeMyTrip, restaurant aggregator and food delivery outfit Zomato, and scooter sharing platform Bounce have announced salary cuts and other measures too. “To conserve our own cash flows, hundreds of Zomato employees have taken deep voluntary salary cuts,” Deepinder Goyal, founder and CEO, Zomato, tweeted on March 25. Apart from the forced cost-cutting, startups are facing business consequences too.

Venture capital (VC) firms, primary stakeholders in the startup ecosystem, are trying to prepare portfolio companies for worsening economic conditions. Bertelsmann India Investments, a VC firm that focusses on early-and-growth-stage companies, is monitoring its portfolio on a 10-to-15-day basis. “[We’re] passing on as many best practices as we can within geographies, whether it is from China or Germany, within the portfolio companies,” says Pankaj Makkar, managing director, Bertelsmann India Investments. “[On the] basis of our learnings, we know there are certain sectors which have been badly hit and some which are moderately [hit]. We’re acting as a source of global intelligence for our portfolio where they can observe similar patterns in their businesses and then act accordingly.” Its portfolio includes: meat and seafood brand Licious, music-streaming platform JioSaavn, online furniture retailer Pepperfry, and Quikr, an online classifieds and services portal.

According to a joint note released on April 1 by a clutch of blue-chip investors such as Accel, SAIF Partners, Sequoia Capital India, Matrix Partners India, Omidyar Network India, and Lightspeed, among others, it will be “very difficult to raise financing in the next three months, and possibly beyond” for home-grown startups. The Covid-19 outbreak could potentially rewrite the rules of fundraising in India, the note added. Ironically, this comes after a breakout year for home-grown startups: They had raised as much as $10 billion in 2019, an all-time high and 55% more than the previous year, while deal volumes increased 30% year-on-year, noted a report by Bain & Co.

Anup Jain, managing partner, Orios Venture Partners, says cash conservation is crucial to tide over these times. “We would recommend postponing appraisals and increments but support employees in working from home as much as they can by offering Wi-Fi reimbursements, rented laptops, and other perks,” says Jain. Orios has investments in companies like milk producer and distributor Country Delight, online medicine delivery platform PharmEasy, and LetsMD, a fintech startup in the healthcare space.

LIKE FOR SEVERAL OTHERS, for Swiggy, one of India’s most deep-pocketed online food delivery startups, which also does doorstep delivery of home essentials, business continuity is critical. As a result, “we have proactively reached out to all our consumers via personalised emails and explained to them the steps that we have taken to deal with the Coronavirus situation including, and not limited to, things that we have done from a delivery executive’s point of view which is mask, sanitisation, attendance check, and thermal guns”, Girish Menon, head of human resources at Swiggy, said in a podcast hosted in March by Accel, which has investments in companies such as Facebook, Spotify, Flipkart, Swiggy, BookMyShow, and others. “We launched contactless delivery where delivery executives can drop the food at a designated place without any contact with the customers.” Swiggy has over 200,000 delivery executives on its platform. “That is a logistics nightmare in a situation like this. We have restaurant partners, about 10,000 employees and customers. Each one needed to be addressed appropriately,” Menon said.

The potential for damage is significant but, say experts, there is hope for those who can show presence of mind. The startup community is encouraging business ideas to tackle the crisis. A group of VC firms and entrepreneurs has launched a `100-crore grant to fund ideas to combat the Covid-19 outbreak. “We believe if you have a clear business vision, financial discipline, rapid execution, and a determination to get a bang for every buck spent, you are all set to ride through these tough times,” says Ishpreet Singh Gandhi, founder and managing partner, Stride Ventures, a venture debt firm. “We are working with our portfolio to see how they can be best prepared for the coming 12 months.” Last year, the fund made its first investment in Bengaluru-based agritech startup Stellapps Technologies. Concurs Jatin Desai, managing partner, Inflexor Ventures, “Do whatever is possible remotely and efficiently in terms of lights-on activities, conserve cash and adapt to the changing environment, quickly.” Those who do will have a higher probability of survival, they say.

This story was originally published in the May 2020 edition of the magazine.