Jyoti Bhandari, Founder & CEO, Lovak Capital Pvt. Ltd.
Lovak Capital, based in Gurgaon, is an investment management firm for affluent and high-net-worth individuals. Jyoti, a seasoned private/investment banker and financial wellness expert with over two decades of work experience in providing advisory services and managing large investment portfolios to successfully M&A, IPO, and other capital markets assignments, founded the firm.
The big idea, from the garage to Wall Street, a well-traveled journey by entrepreneurs, had people who believed in the idea and supported them from the start. Every hour, our country, an emerging land of entrepreneurship, buzzes with great start-up ideas, and every entrepreneur dreams of taking his idea to the world, from local to global markets.
Venture capitalists are not only providing financial resources, but they are also assisting in the acceleration of the company’s growth by improving the product suite, bringing in new technology, monitoring and controlling the revenue model, and thus increasing the competitiveness of start-ups. Post-Covid-19, start-ups are distressed due to a lack of not only financial resources, but also to a change in the business environment with new consumer behaviour and practises, such as working from home and consuming products and services.
Despite enormous challenges, the new post-covid world has flooded venture capitalists’ desks with ideas with the potential to become unicorns. The money raised from venture capitalists is mostly used to build the company’s structure and give it a chance to fly to Wall Street. It entails constructing the infrastructure, establishing processes, attracting the right talent, achieving economies of scale, and making the product available to target market segments. Here are a few of the factors that cause venture capitalists to act as start-up catalysts:
Bridging the Financial Divide
With the current pandemic-driven economic downturn, start-ups face enormous challenges in staying afloat and managing their working capital. Venture capital can help these burgeoning businesses change the world and achieve their objectives.
Although one of the key roles of venture capitalists is to commercialise the idea, they also bring professionalism to the company, which is required for the next stage of growth. Venture capitalists prefer to stick to their core investment rationale and typically invest in industries that they are well-versed in. Their team brings knowledge and experience to the start-up to help it strengthen its business model.
A venture capitalist’s investment will increase the visibility of the idea and help it reach its target market segment. Because most start-ups are struggling for survival as a result of the post-pandemic downturn, venture capitalists’ interest can help them both grow their sales and raise funds.
From the threat of closure to lowered valuations, start-ups must rethink their business models and scale back their operations. In these uncertain times, venture capitalists funding could bring in sustainability to help sail through. Startups that have already been funded within the last year have been able to survive in these times because venture capitalists have been focused on their portfolio companies rather than scouting for new ideas.
Start-ups benefit from venture capitalists’ global connections, allowing them to position themselves in international markets beyond just being a homegrown brand. In these times of changing consumer and business behaviour, some start-ups with the right product can definitely take advantage and reach out to global markets.
According to KPMG, start-ups are facing difficult times in attracting venture capitalists, with close to $6 billion in strong investments by venture capitalists in the fourth quarter of 2019 falling to nearly half in the second quarter of 2020 in the post-covid economy. It is primarily due to a shift in consumer behaviour and requirements as a result of the economy’s work, travel restrictions, and minimalism.
Though various deal structures are available today as a result of industry consolidation, a start-up should look for a venture capitalist who provides downside protection and a medium-term commitment with both resilience and deep pockets to help them weather turbulent times and emerge as a winner.
According to a recent KPMG Q2’20 – Venture Pulse Report, VC-backed companies raised $16.89 billion in Asia across 1011 deals, with biotech companies accounting for $3.7 billion. While industries and businesses are catching up from Q1 and Q2 of 2020, with economies opening up both locally and internationally, Q4’20 should provide some relief for start-ups struggling to raise funds and scale up. As long as there are restrictions on travel and people adapt to new digital consumer behaviour in both professional and personal spheres such as education, banking transactions, health care, and dining habits, VCs will concentrate on their local markets.
This has undoubtedly compelled businesses to adapt and shift in order to cater to new ways of consumption behaviour across industries. As the current trend indicates, start-ups with a go-local motto and doing well by doing good for societies, adding value to work from the economy, environment, healthcare, and education are attracting venture capitalists to help them commercialise the idea and make them a sustainable opportunity on a global scale.