Introduction
Five years back, I was pitching to an investor for my venture capital (VC) fund. I showcased the startups I had invested in and explained how well they had all performed since the investment. He was quiet for a few seconds and responded,
He had observed that all our investments were made during bull markets. He continued to push me onto my backfoot, saying our investments should withstand a crisis to really stand apart. I was shaken by his comment because he was right. I remember telling myself, ‘This is it, I've lost it'.
All the investments I showcased to him had happened in 2014–2015 when the market was pretty healthy. He had seen through my sales exercise. Somehow, miraculously, I won him over and he became my cornerstone investor. One thing led to another and we later partnered to set up Green Shores Capital. Together, we have so far invested in more than 15 startups, and many more individually. However, the philosophy has often been about assessing how well a startup would perform at times of stress.
In 2019–2020, we have closely followed trends about the rise of investments into late-stage startups, fall in VC investments in Asia, the rise of corporate VC and the rise, and subsequent struggles, of the Softbank Vision Fund. These were macro trends that we have been keeping tabs on. We also witnessed a slowdown in funding for early-stage startups during 2019. However, as the COVID-19 crisis has unfolded, we've seen activity fall off a cliff.
We reached out to all our investee companies, discussed their plans and suggested ways they could navigate the crisis. We made several observations during those conversations. There were differences in the way each of them approached the crisis. We saw nervousness, resolve, confusion, hope and, in a few cases, excitement.
Everyone entered the same crisis, yet the way companies have reacted to the crisis varied remarkably. This is largely because of how they had set themselves up for crisis. That led us to think through the ‘Why?’ behind the way our investees have responded. During our due diligence process at the time of investing in these companies, we analysed their preparedness for a crisis. But very few will disagree if I said, ‘You cannot be completely prepared for a crisis’.
In this book, Max and I will go through the journey of a startup getting into a crisis, living through that crisis and emerging out of it. In the process, we will bring together insights from across the world – from VCs, startup CEOs, central bankers and ecosystem stakeholders. We have chosen a few case studies that we will pick best practices from and highlight them throughout the book.
In this chapter, we will discuss why it is important to understand that the bull (market) has been running for too long. This comes from regularly keeping tabs on the key markets across the world, understanding how the macros affect the startup ecosystem, assessing the potential scenarios that could unravel and staying sufficiently nimble to respond effectively.
If you are an entrepreneur, you might want to ask, ‘Why should I be interested in all that? I have enough on my plate with just building my product and selling it’. Remember, successful entrepreneurs are generally compensated so well, not just because they have built and sold a product. They equip themselves with information to navigate their firms through both market highs and lows. Now, let us turn to why the macroeconomy matters and how an understanding of that helps an entrepreneur to make informed decisions.
