The Shift in Angel Investment Post Pandemic
Faster than ever before, industries today are being reshaped around the world. The pandemic has disrupted the norms of regular social and working life for billions of people — and now, an unprecedented scale of consumer needs are emerging, demanding solutions to millions of new problems. Entrepreneurs today, across the globe, are gearing up to answer the world’s collective call for innovation.
While the Covid19 outbreak has brought the world economy to a standstill, denting the startup ecosystem heavily, the majority of which depends on investors and stage funding to sustain and grow. Most affected among the lot were the newly founded startups, due to their reduced business and financing activity, but that does not imply that investors are not looking for new opportunities, however with more caution at this time.
In 2019, Forbes magazine valued the startup segment at around US$ 3 trillion over a period of two years from FY16 to FY18, which is feared to lose billions of dollars due to the Covid-19 pandemic. Amid speculations and fears, it is interesting to see how the startup sector is adjusting during the pandemic period. According to Traxcn — a dedicated agency that tracks private sector investments and finances shows that the number of deals in India’s startup ecosystem in FY20 decreased by 14% to around 1,175, compared to 1,371 deals in FY19. Many seed and series funding that have taken place in the past 2 years are still in active mode and are expected to continue beyond 2021, depending on how the market will reshape. However, the investor spectrum for varied industries will widen and look out for more sustainable enterprises. As much as this health crisis may, unfortunately, hurt investments.
The majority of the startup ecosystem is still in a nascent stage across the globe. It is growing and developing, grasping new rules, adapting to the new business environment. Neither this market had attained maturity nor does the COVID impact bring it to cessation. The bigger question is how this new ecosystem will evolve from an investment and innovation point of view? How will we unlock the fresh market avenues and build our capabilities accordingly?
What Next?
At a time when investors are taking a cautious approach, the angel investment platform Inflection Point Ventures (IPV) is getting aggressive. Inflection Point Ventures (IPV) aims to double its investment to USD 20 million (about ₹155 crore) in start-ups this year. While funding has slowed down in the startup ecosystem, the industry is facing significant changes in its investment portfolios. Long-standing operating models may need to transform to keep up with the competition when digital-enabled customization is becoming a client expectation. Firms are finding investors in new demographic segments or geographies for asset growth. Most venture capital firms or angel investors recognize that COVID-19 has shifted its investment activity and planning.
What history has taught us is that an economic downturn or crisis also presents opportunities to devise new products and solutions. Companies such as Uber and Airbnb rose from the 2008 financial crisis, WhatsApp, Flipkart or Groupon were also launched/built scale during the recession, while capitalizing on need-gaps in that environment. The pandemic has not only brought a paradigm shift in the investment portfolios of angel investors but has impacted more on the consumers’ psychology which is going to affect the spending patterns in future.
Start-ups need to realign their focus on creativity, co-creation and community. Align your startup with — Innovative thinking, collaborative practices, and a sense of social and environmental commitment to come in the league for investments in the new normal.
Though the market condition, in general, is not investment friendly, there are also huge opportunities for certain sectors and investors who are working aggressively to identify such sectors. If the startups are thinking to make any changes or pivots, consumer satisfaction should be of top priority in today’s times. Apart from the healthcare, diagnostic and automation, the current period has witnessed a significant growth of start-ups involving Edtech, entertainment/media companies during COVID pandemic. Other niche segments such as machine learning, automation and artificial intelligence are also on the radar of venture capitalists. Valuing distance-friendly ideas, even more, online-centric businesses are receiving better feedback leading to an outstanding gain in investor attention.
It is also important for start-ups to prepare for a deterioration in investment while assessing the unnecessary costs and spending. Since the flow of investments will slow down for the next 1–2 years, startups will be required to re-assess and increase their runway to last longer than expected. While we can’t determine the true investment forecasts for the next two years, there is still no better time to invest in startups than now. By investing in startups now, the investors are giving the new start-ups liquidity for the next 12–18 months where they get a chance to build strong businesses in a cost-controlled environment.
The thoughts expressed here are from my experience working with an investor in my individual capacity.
