Startups who need money during COVID-19⁠— don’t sell your stake now, warn experts

• Saurabh Srivastava, Chairman Emeritus, TiE Delhi-NCR and co-founder of NASSCOM, believes this is not the right time for startups to give up their equity in a funding round, for they will be valued for much lesser.
• The coronavirus pandemic has already hit VC investments in India.
• Meanwhile, TiE Delhi and Indifi Technologies, which lends to startups and SMEs, have come together to provide startups with growth capital.

SoftBank Chairman Masayoshi Son during the company's earnings calls today said that he is now going to be 'cautious' with new investments. "Going forward, nobody knows what will happen, especially when it comes to the potential second wave that could be bigger than the first one (coronavirus). We cannot promise that there will not be any additional valuation loss," he said.

And Son's fear will be resonated by investors across the world. And that makes it not a good time to raise funds.

Closer home too, experts are against the idea. This is not the right time for startups to give up their equity in a funding round, for they will be valued for much lesser, believes Saurabh Srivastava, Chairman Emeritus, TiE Delhi-NCR and co-founder of NASSCOM.

“What the startups need now is to scale, it’s hard for them at this time to get any equity infusion and if they do it will dilute them much more than what otherwise it would have done. There aren’t many instruments that they can use, where they can keep their stake,” said Srivastava in a recent chat with Business Insider.

Srivastava was referring to the latest option for startups to gain capital – where TiE Delhi and Indifi Technologies, which lends to startups and SMEs, have come together to provide startups with growth capital. The growth capital will be a loan to the tune of ₹10 lakh to ₹2 crore to TiE Delhi-NCR members which will help them meet their working capital requirements amid the Covid-19 crisis and beyond.


“This is designed for companies that are in business already, they have a track record of revenues. For an entrepreneur who has a profitable business that can actually scale,” said Srivastava.

Alok Mittal of Indifi added that for the loan, that they have set a revenue threshold of ₹10 lakh per month, as an eligibility criteria.

India’s startups are vowing by the philosophy to scale in the times of a crisis. Every other day, startups are announcing pivots to new unexplored categories where they hope to see growth. But these pivots and experiments don't come for free. This is also a time when startups need to have the cash that fuels their growth.

The coronavirus pandemic has already made investors wary. In the first quarter of 2020, VC investments fell sharply to just $2.2 billion, after garnering $6 billion in the last quarter of 2019, according to KPMG.

“VC investors are already starting to ask the question, ‘How will your business be impacted by COVID-19?’ This is a question everyone will be asking for the next few quarters. Here in India, we are beginning to feel the full impact of the virus. Over the next quarter, while the pipeline will likely remain strong, deal flow is expected to slow down. A lot of deals will probably get deferred to the later half of the year,” said Nitish Poddar, Partner and National Leader - Private Equity, KPMG in India in a statement.

But Srivastava would like to bet on startups even during this time. “If we were to nurture our startups, they will change the game for India, not just big industry,” he said.

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