The ‘Next Normal’ for startups: How the early stage investors’ money moves in the post-COVID-19 world

While people are still figuring out what changes may come in, it is increasingly becoming clear that this period is going to change certain things fundamentally forever.

Nilesh Maurya

If people were told a year back that their life would be confined to four walls, they would have laughed it off. But today it’s a reality. Humanity across the globe is facing a crisis that our generation has not seen before. The decision that people and their elected governments would take will shape this world into a different place, not just in healthcare but also in our economies and businesses. Our shoulders are not just burdened with responsibilities of the near future but also with decisions that will shape our long-term future and we need to act consciously and sanely.

If we look at the wider perspective, this pandemic is not only a health crisis of the highest magnitude that will force us to make decisions, but it may also change the global economic and business order. And startups, that might be immediately firefighting and concerned about the near-term survival, will soon have to start thinking about their distant future – a future which may change their business models and in some cases their businesses and maybe a vision as well. And all this will have to happen while the battle against the ‘invisible enemy’ continues so that they roll out their new version of businesses as soon as we see the light at the end of this pandemic tunnel.

But while startups and their stakeholders find out what needs to be changed in their business models, the question that looms over everyone is what is going to be the ‘New Normal’. While people are still figuring out what changes may come in, it is increasingly becoming clear that this period is going to change certain things fundamentally forever — the way we live, the way we eat and most importantly the way we do business.  It may still be too early to gauge or decide whether these changes will be permanent or temporary but some industries and sectors will see darkness for some time — long enough to move out of the attention of atleast the private investors like the venture capitalists and private equities.

As mentioned earlier none of us can be sure of what’s going to turn out in the post-COVID -19 era; one can only draw probabilities by being sure that every downturn emerges with some strong fundamental changes that become the new order. Looking at a few emerging trends, here are a few probabilities that may change the course of initial investments in start-ups.

A pause on wanderlust may bring down travel, tourism, and allied industries

This is one industry that has been impacted because of the pandemic. Not just airlines but the tourism industry as a whole. Be it hotels, tour operators or booking portals, all seem to be burning their hands in a fire which looks difficult to cease in the near future. With most countries terrified to open their international borders, a lot of early-stage companies associated with travel may be facing the end game. And as the wanderlust of many may take a back seat, new age businesses like travel booking portals and bread –and-breakfast providers may not see investor money for quite some time.

Outcome for startups:  All travel and tourism-related startups including hotel and ticketing websites may not see new investors for quite some time. 

Will e-commerce replace the brick-and-mortar retail?

With norms like social distancing engraved in the minds of consumers and the fear of being in crowded places, malls and shopping complexes may see fewer footfalls in times to come. While e-commerce has already dented the retail sector over the past decade, this era after the pandemic may bring e-commerce to more prominence. And this may also attract the private investors towards them while real estate play may take a bit of a backseat.

Outcome for startups: Investors may be lured towards companies that leverage e-commerce and technology well over the ones that choose brick-and-mortar business models.  

 Food staples and restaurant delivery companies may see a rise 

Again, a trend where real estate may take a hit atleast for some time. Just like the scare of being in a crowd may keep people from retail spaces, the same may be true for food retail – be it for food staples or restaurants. The way things are placed right now looks like there would surely be a rise in delivery of food items — be it staples or food from restaurants. This could also fuel funding for dark kitchens and hyperlocal deliveries.

Outcome for startups: There could be some aspects that could fundamentally change things here. Deliveries, just like retail, would be the name of the new game for food companies on both staples as well restaurant side. There could be some categories that may move completely towards the Dark kitchen and Delivery model. 

Silver Screens may make way for Home Entertainment 

With the pandemic crippling the production of major movies and theatres considering changes to adhere to the new social norms, it is very clear that the silver screen would take some time to get back the eyeballs. This audience is already getting addicted to the digital home entertainment platforms and it would be difficult to pull them back to silver screens sooner. While it is difficult to wipe off theatres and multiplexes completely, their dry run could be a little longer.

Outcome for startups: A lot is happening in the digital platform space as content moves online. Maybe a little more attention could get more artistes online beyond films and web series currently which dominate the Indian OTT space.

Time to reduce meat and embrace organic, vegan and mock meat

Another sector that sees some changes in consumer choice. Again it is difficult to write off meat businesses completely, the fear of pandemic and diseases evolving out of animals as food may move some consumers away from meat for some time. This could see huge traction coming towards niche food choices like organic food, veganism and mock meats as people may look to replace their meat platters especially when they claim to be much healthier and cleaner.

Outcome for startups: With limited options to invest in food companies, the emerging trends could see early-stage and private money move towards food businesses that prove to be healthier, nutritional and cleaner than their unhealthier alternative. Health would surely take priority as people would look to be fitter and more immune and what better way would it be to change the food we eat to get that.

Is this the end of ‘co-sharing’ businesses?

The last recession saw a lot of ‘co-sharing’ businesses spring up and over the last decade, they have flourished leaps and bounds. Co-working, co- travelling and co-sharing all become business models that attracted a lot of attention from private investors over the past decade and everyone just began to believe that this is the new order of the world. But what came as an invention of the slowdown and crisis, it took another crisis to maybe end it. With new norms of social distancing and constant fear of getting infected by people in close proximity may prove hazardous for the whole co-sharing economy. Investors are already shying of deals in co-working spaces which were once a darling and this could just be the start of the end.

Outcome for startups: Startups in the ‘Co’ economy may see some investors move away from them. There could be massive changes to the business models of these companies which are already venture capital-backed so that they become more viable to the new changes socially as well as economically.

Office spaces may go more virtual

There is all probability that business may move more virtual or small teams may move to multiple locations so that they don’t fall victim to situations where businesses may come to a standstill. We may see business models going more agile going forward and technology will be a game-changer in this change. Freelance talent may also see a slight uptick as businesses may hire talent across borders to be more cost-effective with technology already being in place.

Outcome for startups: Earlystage companies that offer a solution for virtual offices such as video conferencing and project management and task management tools may see some traction from early-stage and private investors. With an uptick on freelance talent, virtual training, education, and business content software companies may also see some investor traction. 

Logistics may see more tech coming in  is it time for drones, robots to come in?

With so much of business moving to multilocation and deliveries becoming key elements of business for the next normal, we may see some new-age technology coming to play in logistics sectors. Software and platforms that map logistics to delivery automation such as drones and robots may soon be common in businesses. Logistics in any form, be it across the value chain or the last mile will have some gains in its name.

Outcome for startups: Logistics of any form be it last mile, cold storage, B2B or robotic and mapping technologies seems to be a promising sector where investors could be surely eyeing. While the businesses would see some uptick, investors would want to pick up the right model that doesn’t hemorrhage too much cash and sustains tremors on a path of growth.

Increase in investment toward fintech and maybe little ahead in blockchain and tokens

With new rules of social-distancing setting in and even with businesses spreading far and wide and borderless as described in some bases above, the money we use today promises to go digital sooner than later. With central banks also recommending the use of the digital mode of payments, fintech may soon haul over the way money moves from one person to another. This would also drive the need for digital security measures along with traceability and transparency and may open doors for blockchain.

Outcome for startups: Fintech seems to be like one of the key sectors in the near future and will improve everyday where people would use fintech more than just to make payments and recharge their phones. There is every possibility that blockchain and cryptocurrencies with its actual use case (not as black money haven) may soon see some traction from the early investors. 

While several obvious ones are going to gain traction in times to come like healthcare analytics and data management, there is still some time for them to be completely mainstream. While we consider the scale on which these changes would happen, it is not years but months or even weeks that we would realise that the impact of this crisis is far beyond just the health. This crisis will also bring in an understanding as to how these innovations would play out when we end the battle against the pandemic when the world order changes and as we walk into the ‘Next Normal’.

Nilesh Maurya is Director-Investment Banking at Omega Capital Consultants. This article originally appeared on Moneycontrol on 24th April, 2020.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s