The black swan is a graceful reminder to reclaim your personal power. They signify the transformation from victim to victor and are a great reminder that you are never truly powerless, even in the face of seemingly insurmountable odds. So it’s no surprise that COVID-19, with its uncontrollable havoc and widespread panic, has been nicknamed “The Black Swan” by some business executives.
In March 2020, Sequoia, an American venture capital firm, sent out a memo titled ‘Coronavirus: The Black Swan of 2020’. This note provided guidance on how to deal with the potential consequences of the coronavirus pandemic. Sequoia emphasised that all businesses should be questioning the assumptions they had held about themselves prior to COVID-19, and formulating clear business plans about how to survive this economic downturn.
The key takeaway from the memo was a quote from Darwin stating that “those who survive are not the strongest or the most intelligent, but the most adaptable to change.” In this turbulent time, some businesses will prosper while others may go under, but those who are clinically realistic and able to take decisive action as the circumstances change—those are the ones who will survive this pandemic.
Challenges
Although the occurrence of COVID-19 may create unique business opportunities for some startups, the harsh reality is that it will primarily bring challenges. Logistical challenges, funding shortages, drops in business activity, supply-chain disruptions and cancelled events are only a few examples of the potential impact of COVID-19. One of the most concerning factors is the simple fact that the economic value of the global startup economy is slowly dwindling.
Many Southeast Asia venture debt firms have seen an increased demand for debt financing as startups struggle to make ends meet. This rise in demand will not necessarily be met with more issued loans, as many startups are not currently in a position to convince lenders of their potential. However, due to Southeast Asia’s robust startup ecosystem, many will decide to invest. Here’s a look into some of the ways funding trends might change amid the pandemic
New funding trends
Industry bias
Although every industry has experienced disruptions due to COVID-19, some sectors have come to a complete halt. It only makes sense that current funding will go to industries who still have a chance to thrive in this environment. The hardest-hit sectors like travel, tourism, and hospitality will most likely continue to struggle, but startups in more promising sectors, such as healthcare, remote work solutions, logistics, and productivity software are likely to receive more financing.
Higher demands and tempered investments
Venture capitalists who decide to invest in startups at this time are going to have more demands and concerns. They will need proof that the startup has what it takes to grow, but will also need to guarantee that the company will be able to adapt regardless of any new challenges that may arise. Southeast Asian startups looking for funding at this time should expect lower valuations and alternative modes of financing like venture debt and convertible loans.
Increased mergers and acquisitions
As startups struggle with their cash flow, some larger companies are looking for ways to maintain their economic situations by acquiring potential competitors and/or expanding their product offering. M&A activity is a great way for both larger and smaller companies to stay afloat. However, most of the action will reflect the uncertainty of the times and require serious consideration to account for any potential risks; this may involve more secondary sales rather than initial public offerings.
Debt restructuring
Some companies, unfortunately, will have to deal with much debt at this time. As a result, startups will likely be taking advantage of debt restructuring and doing their best to avoid bankruptcy through any means possible.
Increased focus on profit
As advised by the Sequoia note, many startups should indeed start questioning the assumptions they have about their business. These questions will help them understand things such as cash runaway, fundraising, sales forecasts, marketing, and capital spending. As these areas require more attention, many startups will have to begin placing a heavier emphasis on cutting costs and finding means for profit whenever possible.
This pandemic has placed much of the business world in a uniquely challenging position. The pressures of rapid change and uncertainty have not been easy to deal with; however, there have also been many opportunities for growth and development. If Southeast Asia startups can take this time of isolation to be productive, focus on the things that can be controlled and work on optimising them to the best of their abilities, budget their money, and get creative about finances—many of them have the opportunity to rise and become victors in this challenging time.