How To Keep Your Business Afloat In Uncertain Times: Conserve Cash, Plan Survival

Investors tell start-up founders to focus on saving the business as Covid-19 rages and not worry about growth

- N Ramakrishnan

In normal times, venture capitalists will push the start-up founders they have invested in to go for growth. But these are abnormal times and the VCs are singing a different tune. They are telling their portfolio companies to conserve cash and do whatever it takes to ensure that the business survives without having to raise funds for at least 12-18 months.

The reading of the investors may vary, but the message is the same: it is going to be extremely tough for start-ups to raise fresh money for the foreseeable future, unless they are some outstanding ventures and their business opportunity appears so robust to attract investors even in the time of COVID-19. Even if the lockdown is lifted from mid-April, the investors don’t see the market improving for the next one year at the minimum.

“Everybody has been told that you have to assume that this year is going to be a writeoff for most start-ups. Cash is going to be hard. Whatever money you have, make sure you can stretch it till June 30 of next year. Ideally even December 31 of next year. I don’t think it will be easy for companies to raise money,” says Sanjay Swamy, Managing Partner, Prime Venture Partners, an early-stage venture capital firm that invests in sectors such as fintech, SaaS, B2B, and consumer.

Long-term plan needed

GV Ravishankar, Managing Director, Sequoia Capital India, makes a similar point. “We do see people receding from the market and that is what we are telling our companies. You should expect that and hence don’t plan with the assumption that capital is going to be available in six or 12 months. So, extend the runway for 18 months if not 24 months. If they can go all the way till March 2022, that is a good thing,” he says.