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Coronavirus a Black Swan for Startups: Sequoia Capital

VC investments will soften in the coming quarters forcing startups to cut down costs to stay afloat

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With the market surging an all-time high and a total lockdown in India, Venture Capitalists (VCs) of the country are taking a step back.

Leading VC firm Sequoia Capitals says  ‘Coronavirus is Black Swan of 2020’. The company has alerted its people about the forthcoming drop-in business activities, supply chain disruptions and curtailment of travel.

Experts say that various companies are finding alternative options but shall remain at a risk to a cascading problem.

Dr Apoorva Ranjan, Co-Founder & MD, 9Unicorns, a VC accelerator fund said, “VCs globally are being very cautious. Over the past few weeks, global investors have been advising and guiding their portfolio companies on how to sail through these turbulent times. In India, we will get to see some impact now as the Government has announced a total lockdown in the country. This will also have a short term impact on the start-up ecosystem.”

Anuj Golecha, Co-Founder, Venture Catalysts said, “While VCs around the world are taking a cautious approach, they are also being very optimistic about the consumption story that is likely to pick up once everything settles down. This will, however, take another two to three months.”

Golecha says, “VCs will now take into consideration the factors such as Covid pandemic and the implications to decide their funding strategies. Pandemic such as this will have a long- term impact on the economy and right now the approach most VCs are adopting is to wait and watch as currently there is no such playbook that would give them an idea on how to deal with this kind of situation. We expect a lesser number of large ticket deals in the coming quarters. But for startups with solid businesses in India, we are likely to expect more deals in FinTech and Healthcare sectors this year.”

Private financings could get soften significantly, Sequoia said in its note. However, considering the current situation, a lot is yet to come, said experts from the industry.

“We do not expect any big-ticket announcements in consumer-facing business for at least the next six months. Start-ups, mostly in the travel, retail, fashion, hospitality sectors, are also having a tough time as there is hardly any business. Depending on the sectors they are present in and the kind of runway they have, they are expected to cut down on their expenses massively to stay afloat,” said Ranjan. 

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venture capital investment COVID-19 coronavirus outbreak