Startups Need To Reimagine and Adapt: Rajan Anandan
According to Anandan, Managing Director, Sequoia Capital India LLP, while sectors such as international travel and hospitality will likely take a long time to recover, the pandemic has opened up opportunities for edtech, digital health, health and hygiene products and e-commerce operators
The outbreak of COVID-19 has definitely paralyzed many businesses world over and it will take some time before they are back on their feet. Some may even perish. This period has also been tough for startups, especially the smaller ones, which were operating with thin or no margins. Nevertheless, the situation has also opened up opportunities for many startups and businesses.
In interview with Entrepreneur Asia-Pacific, Rajan Anandan, Managing Director, Sequoia Capital India LLP, said while sectors such as international travel and hospitality will likely take a long time to recover, the pandemic has opened up opportunities for edtech, digital health, health and hygiene products and e-commerce operators, among other. He also talked about Sequoia’s Surge program which aims to help the next generation of companies build truly global businesses. Edited excerpts:
The COVID-19 pandemic has rattled economies the world over and startups have been hit hard. Which of the startup verticals tend to gain from the situation? Which would see ‘no growth’ in the near future?
Many verticals have the potential for growth if they can be reimagined. The past few months have shown us in an environment like this, consumer behavior that could have taken many years to change can change in two months. Edtech is an example where not only has the number of users of online education in India doubled to 90 million over the past several months, but the number of monetizing users have more than doubled in this period. This kind of growth is truly unprecedented.
In the short term, we are seeing several sectors that have significant tailwinds including edtech, digital health, health and hygiene products, e-commerce—especially where supply chains have not been disrupted—remote work and collaboration tools.
COVID has also caused businesses of all sizes to digitize faster. Larger businesses are doubling down on digitalization. Digitization of SMEs has accelerated in India and Southeast Asia, and Surge is excited to see the innovations that are now beginning to happen in the SME sector.
There are sectors like international travel and hospitality that will likely take a long time to recover and others like offline retail and restaurants that will be impacted for some time. It will be harder for startups in these deeply impacted sectors to grow in the near term. Despite the challenges in some sectors we do remain very optimistic for the long term. Businesses that survive the next 12-18 months will come out 10 times stronger and they will use this period to reimagine their businesses.
In the post-COVID world, what will change fundamentally in terms of funding, both early and late stages?
While Sequoia India and a few other funds are expected to continue to invest, for the next few months the overall funding pace will be slow.
However, funding has and always will go to the best companies who solve real-world problems at scale. In the post-COVID world, we believe that funding will go toward startups that have ‘must have’ solutions and products, amazing customer love and business models with strong unit economics. We continue to see significant activity at seed and series A, and expect funding at the early stages to recover quickly.
The market for later stage funding will also continue but the bar is much higher. The era of growth for the sake of growth is over. Late stage investors want to see businesses with strong economic engines.
Do you foresee startups in different verticals collaborating to find solutions to tackle post-COVID issues? Has it started already?
It has already started. For example, some companies have had to furlough some of their team members. At the same time, there are companies that need people for projects or assignments but are unable to afford a full-time quality resource. At Sequoia India, companies are coming together to share their engineering teams on a short-term basis with each other. We have already seen 80 companies and 250 engineers who are part of this program.
Amongst Surge companies, Qoala (Surge 01) and BukuKas (Surge 03) are working together to provide Indonesians with access to insurance plans to help them cover the risk of COVID-19.
Not just with startups, we will see collaboration across the ecosystem as companies and sectors work together to overcome COVID-related challenges.
In India, individuals from several startups and VC firms have come together to form ACT (Action Covid Team). ACT gives grants to Indian startups and platforms that have innovative solutions to fight the pandemic. This is the first such collaboration to happen globally.
We have also seen several Surge and Sequoia India companies collaborating with government and public bodies around COVID-focused problems.
What according to you is the ‘new normal’ that startups should adapt to?
As the current crisis is an unprecedented one, the level of uncertainty we are facing will continue for some time and it might be too early to know what the new normal will finally be. Let’s see how the next few months shape up.
Globally, industries and businesses will change how they interact, sell, communicate and navigate their ecosystem—and founders and leaders need to take rapid and decisive decisions—to survive, and eventually thrive in a rapidly changing world. Every business needs to be prepared for different scenarios and be ready to reimagine their business, perhaps permanently.
How is the hyperlocal grocery market set to evolve post-COVID and also with the entrance of Jio-Facebook?
The online, hyperlocal grocery business is one of those that has benefited from the current scenario. With more people either unable or unwilling to step out, the need for online solutions for most daily requirements has increased significantly. Some sectors may see a permanent change in consumer behavior. The current crisis has created the tipping point for the leading online grocery startups and an incredible opportunity to digitize India’s 13 million kirana stores. We see significant potential to accelerate the digitization of these very small retailers and build new hyper local consumer offerings.
The third Surge cohort saw many Indian startups making the cut. How have they been evolving over the years?
In India, the early stage ecosystem has developed in ways we could never have imagined. Today we have Indian companies building global businesses from day one. Over the past decade we have seen the startup ecosystem grow from infancy into the third-largest startup ecosystem in the world. In 2010, India had less than 1,000 startups, zero unicorns and very little venture capital. In 2019, India had over 40,000 startups, 30 unicorns and over $14.5 billion of venture capital funding.
The current crisis, however, has created challenges around funding and demand visibility. There’s a necessity to act quickly and extend the runway. Most startup founders are focusing on survival right now. We are very impressed with how quickly and decisively founders have acted to ensure they take care of their teams and businesses. Now that we are three months into the crisis, we see many Surge founders who are focused on reimagining their businesses and laying the foundations for accelerating growth.
What can we expect from the third edition which has just started?
This current cohort of Surge has startups that are being built in one of the toughest times in recent history. For most of them, it will be a trial by fire. But they are already proving themselves to be an incredibly resilient group who have their eye on a 10-20 year horizon and are not limiting themselves to short-term challenges. Some of the strongest companies in the world have been built during downturns, and we are confident that we will see the same from Surge 03.
From a program point of view, we’re now halfway through Surge 03—and it’s the first time that the program is being conducted entirely online. All Surge content, access to global leaders and speakers, and high-impact company-building support that Surge is known for, remains unchanged.
Surge uses a combination of group Zoom sessions, smaller group breakouts and online office hours to connect and share content and ideas with our current cohort and run the program.
There is also a native Surge app which allows for all three cohorts to interact. It’s wonderful to see founders helping each other, sharing resources and collaborating. This is the community feeling that Surge has aspired to create from the start and it hasn’t changed, even if the current format of delivery has. While you can’t replace the sense of community you get from face-to-face interaction, this comes a very close second.
Anything else you would want to talk about.
It’s never too early to apply for Surge. We’re excited to help the next generation of companies build truly global businesses—and we would love to see more ambitious and missionary founders from India and Southeast Asia become a part of the Surge community.