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START-UPS 2020: THE FUTURE IS NOT WHAT IT USED TO BE:

START-UPS 2020: THE FUTURE IS NOT WHAT IT USED TO BE:

1. Companies that have established business models, proven revenue, enviable customer database, listed and available at better valuations will be considered.

2. The ad revenue will be hampered for some quarters across all geographies. But the huge customer database will balance the equation for fresh contract rates and not impact entirely the revenues.

3. Companies with high cash reserves will have the muscle to change the business model.

4. Discretionary businesses will have to face a downward valuation ranging from 20 % or more based upon their model and necessity.

5. Business models thriving on cashback and bonus points for redemption will be more impacted on its value and face challenges ahead as traditional early-round VCs will not be generous for a considerable time going forward.

6. Multiple rounds of funding participated by the same set of investors will not be a recurring occurrence.

7. New set of investors who participate in different rounds of funding will help to get fair value in each round.

8. New valuation methods will also be used instead of traditional ones as the regular methods have failed during an event of crisis.

9. Some start-ups will even shut down due to lack of availability of new funding.

10. PE Funds usually invest in start-ups where the cash burn rate will gradually reduce with time, the earlier the better. But in these uncertain times, it is hard to estimate the period of cash burn left in the life of the start-up. Remember, your customer acquisition strategy will need to be reworked since the billing rates, contract life, and escalation clause will all be on the lower side.

11. Time gap between each funding round will increase than before as the maturity period increases naturally during recession; Plus, the cash burn run rate will have to be in control and customers acquisition T&C will be much tougher.

12. Business models will be different between June to Dec 2020 as time decay will affect the business environment on its own.

13. A prudent founder will not regret taking a fast and decisive decision for the rest of 2020.

14. Expenses go up during a crisis, as you have fixed and variable expenses against a dip in cash flow. So, the ratio becomes skewed.

15. Series A will be difficult for the next 8 months.

16. Series B, C, D will be much more difficult as liquidity crunch will force VC’s go back to the drawing board to have a more realistic and achievable valuation for the targets.

17. Start-ups are inherently risky, and statistically most do not break even. The few that do succeed must “cover” for the rest in order for the entire portfolio to provide sufficient returns.

18. VCs commonly hold 5-10 companies in their portfolio. For these reasons, the targeted RoI for early-stage companies are quite high, often reaching 10x.

19. Since the target RoI will now most likely not be achieved, VC’s will have to cover for some portfolio investments that will be devalued or shut down because of COVID-19.

20. VCs will now look to top up good portfolio companies at a discounted price or will target some companies where values have gone downward, and they had not participated in funding round earlier.

21. Any fresh target company will be difficult to pass the litmus test unless the business model is viable for another 10 years or so… remember the VCs will have a challenging 2020 to 2022.

22. Post COVID-19, restrictions and sanctions will make costs go up for another 2 years of the least.

23. Contactless businesses which rely more on AI, automation, online, ioT will be in the radar of VCs and such businesses will slowly go up the value chain.

24. Cost of money will go up and hence pressure will be upon founders to reduce costs and shore up revenue simultaneously. Remember most of the founders have started out in the last decade only and hardly have any idea as to how to operate in a bear market with prolonged recession without much cash at disposable.

25. The 2008 crisis only affected banking and to some extent large hedge funds. Business outside finance and many other sectors in fact started doing well. But 2020 is the stuttering of the economy and the reset button pushed by the authorities that has caught many businesses flat footed or ill prepared for such shocks. Forget business owners, even the VCs were not prepared at all.

26. Start-ups will have to be careful to deploy the capital properly. Venture capital firms will slash investments in money-losing start-ups. This means all the start-ups with negative cash flows and high burn rates could undergo a severe cash crunch in the near term.

27. Without proper funding, there could be a surge of companies that could start failing driving up non-performing loans for banks, and lead to the next big financial crisis

28.   wealth is best compounded by avoiding  large losses. Significant losses are best  avoided by not paying too much.  Smart investors and advisors will now be much more active in choosing the right mix of companies at the right price

29. value-based strategies will hold up much better than growth strategies.






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