Question

1.   How would you characterize the current VC and PE investment markets?

2.   Is it a good time for entrepreneurs to be raising money? Why?

Answer 1

Ans.

1.

Mumbai, 21 April 2020: On account of the Covid-19 global outbreak and stipulation of lockdowns and restrictions on travel and normal business activity, the economic trajectory of India has been significantly disrupted. Indian PE/VC investments in 2020 to be ~US$19 billion to US$26 billion; a reduction of ~45% -60% from 2019 levels as per EY’s latest report titled, “COVID-19: projected impact on Indian PE/VC.” PE/VC exits are also expected to reduce by 50%-67% % from 2019 levels, adds the study. Projecting how General Partners (GPs) will most likely react to the crisis in 2020, the study expects that GPs will give greater attention to the business continuity of their current portfolio companies, seek attractive private investment in public equity (PIPE) transactions and are also likely to favour growth capital investments and structured credit deals.

Impacted by COVID-19, PE/VC investments in 2020 are on a downward trajectory. With March 2020 at US$818 million, monthly Indian PE/VC investments went below the US$1 billion mark for the first time in the last three years. Exits stand at US$1.1 billion in March largely due to a single large US$1 billion deal. Fund raising has gone cold with March 2020 recording just US$85 million in fund raises.

“The COVID-19 pandemic has caused severe dislocations across markets, and with many countries under lockdown, economic activity has contracted significantly. The Indian government has extended the ‘lockdown’ to May 3 and has indicated its inclination to permit resumption of some economic activity under strict guidelines in ‘green’ zones.

However, there is still a lot of uncertainty around: 1) The future trajectory of COVID-19 in India,

2) A holistic understanding of its ramifications on the global and Indian economy

3) The near-term economic trajectory of the country.

While these uncertainties may continue to remain for some more time, our hypothesis is that there will be a significant reduction in Indian PE/VC investment and exit activity in 2020 as compared to the preceding year.

Ans.

2.

The Covid-19 pandemic has upended the global economy. As countries scurry to fight the unprecedented outbreak with complete lockdowns, businesses have been stalled, global trade has been thwarted and supply chains have been disrupted.

These times could be anxious for startup founders, particularly for those still in early stages. From once worrying about innovation and scaling up, they now stare at an existential crisis about business continuity while counting their remaining pennies.

To help India’s startup founders tide over this uncertain period, a group of top venture capitalists and private equity firms have listed some best practices to undertake in the wake of the Covid-19 pandemic.

"The major objective of risk management is to create a framework that allows the company to be proactive rather than reactive while assessing the macroeconomics trends in the market,” the document says. “While assessing impact, go one layer deeper and see if your customers and the sectors that they operate in are getting affected.”

Some of the systemic risks that the VCs want startups to lookout for include:

Exchange rates

Risk from public markets

Supply chain disruptions

Over-dependency on capital sources

Cybersecurity