What would be the role of impact investing in a post-covid world?
We expect impact investing to change in two ways: It will become “mainstream" and more tech-led. The momentum that impact investing was gathering will accelerate, with far more attention now on building resilience and catering to the needs of lower-income populations and small businesses. In recent years, mainstream venture capital has also been flowing to this segment. We also expect a greater focus on measuring impact beyond only financial returns.
The impact investing space will become more tech-led as the covid-19 situation increases comfort with using digital channels and with requirements for physical distancing expected to continue. We will see a combination of digital and offline business models where technology will augment delivery of products and services for the “NHB"or next half billion Indians.
Tech will also increase opportunities for them to improve their access to employment, productivity and raising income levels.
How will it impact entrepreneurship?
While uncertainties about covid-19 and its exact economic consequences remain, it is clear that, across the board, the economic shock will be prolonged and deep.
For early-stage entrepreneurs, the impact will depend on the sector they are in and how much cash runway they have. Ed-tech, digital health, digital content and essential retail trade have seen a perceptible increase in demand since the lockdown. Startups in fintech, particularly lending companies, are adversely affected. There are several sectors where operations have come to a complete halt, such as mobility and retail. In ONI’s portfolio, Vedantu, WhiteHat Jr, Doubtnut (edtech), 1mg and MyUpchaar (digital health), Dailyhunt, Pratilipi and IndusOS (digital content), and DealShare (essential retail trade) have seen positive traction.
A post-covid-19 world will see major changes in the ways of living and working; this will create new entrepreneurial opportunities with a greater role of digital channels. Investors like us and other Indian impact investors and VCs have capital to deploy, so entrepreneurs starting up at this time with scalable solutions and strong teams will find access to capital.
Is pivoting, for many startups, the only option going forward?
We don’t believe this is the case. Services and products that have found product-market fit are likely to remain unchanged. What will change radically is the rate of adoption of digital channels, and this provides a fillip to startups as compared to more traditional, offline incumbents. We will, though, see a lot of focus on controlling burn and getting business models and unit economics right.
What are you telling your portfolio firms, beyond conserving cash?
At present, businesses need to focus on long-term sustainability. We are helping our investees ensure business continuity while also being fair to their employees.
Apart from conserving cash, our guidance to entrepreneurs is: revisit the business plan and all assumptions, moderate expectations on timelines for fund-raising and valuations; step up communications with customers; communicate with your team on the business strategy while keeping their health and safety a priority; strengthen your board or advisers with people who have managed businesses through multiple cycles, and watch out for concentrations: by customers, vendors, geographies, and so on.
Have valuations changed?
We are seeing lower valuations in cases where companies have to raise capital imminently and the medium-term impact of covid-19 on their business is still unclear, or where product-market fit is not fully established. We will likely see a new (lower) valuation environment for financial services companies, particularly fintech/lending companies, in the medium term. Conversely, some sectors like edtech, digital content have not seen valuations change as the outlook for these sectors is still positive.
That said, this remains as good a time as any to be partnering with strong companies, at realistic valuations, with a long-term time frame in mind.
Are you looking at new sectors for potential deals?
Our main priority is to be a supportive investor for our portfolio through this difficult time. We also continue to evaluate proposals across the areas of interest to us—tech-led solutions for the lower 60% of India’s income distribution, or India’s NHB.
These include basic and aspirational services for the NHB (education, health, mobility and content), small businesses that employ the NHB or are run by the NHB.