Humans learn the most in times of adversity. By that logic, 2020 will feel like a PhD when we look back a few years from now. After years of running from meeting to meeting, from city to city, the entire world was forced to 'become still', to adapt and reflect on what matters the most to each of us.
We reflected. So did startups. After years of chasing growth at any cost, March 2020 confronted the ecosystem with a tsunami of uncertainty. Existential questions faced us all. Investors wondered: Is the world headed into a multi-year recession? Founders wondered: Will another round of funding be possible? Will customers return? How will they pay salaries if revenues go to zero?
The first reaction in every company was "how do we survive?" Bear Grylls says: "I am not fearless. I get scared plenty. But I have also learned how to channel that emotion to sharpen me."
That's exactly what startups did. Clarity and simplicity are the antidotes for complexity and uncertainty. Consider Zomato, which went from losing money in food delivery to making it the most profitable line of business. Product-led growth (sparked by introducing features like hygiene ratings and contactless delivery), forced prioritisation (shutting down some international markets where they were not leaders) and giving back (via the Feeding Foundation) have been the focus areas.
We also sharpened our focus within the firm. Earlier, Sequoia Capital India had one fund structure. This year, Sequoia Capital India raised $1.35 billion and created three dedicated funds, Seed, Venture and Growth, each line of business with its own team. We took time during the downturn to hire moonshot talent within our firm. Our firm also launched Guild, a programme for growth stage founders, to complement our early-stage programme, Surge.
Once there was clarity of purpose, it became important to rally the forces. In the face of adversity, there is nothing like an audacious goal to get the adrenaline pumping. The best leaders understand the importance of over-communication in a crisis.
For example, Meesho's business came to a grinding halt when they were tagged as 'non-essential'. The team rallied to focus on the biggest challenges Meesho would face once the lockdown was lifted. Creation of geographically diversified and new suppliers (to replace those going bankrupt) was undertaken on a war footing. Frequent communication via live videos from warehouses was sent to the millions of women entrepreneurs to convince them that the packages were hygienic and safe.
Our founders rallied their teams, and so did we. This year, Sequoia India launched fortnightly 'All Hands calls', access to counselling facilities and city-level 'huddles'. During the lockdown, we added 25 new folks, people who we still have not met in person. But despite the challenges, the pandemic has made us all feel closer together than ever before. There is something about being vulnerable and having a common enemy to bind a team together.
Many companies used this downturn smartly, building leaner businesses, better products and reaching out to new consumers in different ways. The rapid pace of digital adoption also created new tailwinds.
The EdTech sector, for example, achieved the kind of growth that might have otherwise taken three to five years. Almost every child and parent went online for coursework, programming classes, new language skills and more. Educators and schools also had to accelerate adoption of technology to adapt and evolve. BYJU's had 40 million downloads prior to Covid and over the last nine months saw 25 million new downloads, a staggering inflection. Likewise, companies like Unacademy and Doubtnut have seen unprecedented growth, especially from Tier-II & Tier-III Indian towns.
The Dow Jones Global Tech index has gained 40 per cent this year (60 per cent up from April lows) on the back of spectacular IPOs like Airbnb, Zoom, Snowflake, reinforcing the message that the companies of the future will have technology and innovative business models at their core.
Innovative products, not large balance sheets, will prevail. That's wonderful news for a young founder starting up.
Doing The Right Thing
In March, the level of uncertainty was so high that many startups were forced to opt for zero increments and even salary cuts for founders and several employees. Survival was at stake.
Vikram Chopra at Cars24 says: "The most amazing thing was that during Covid, we didn't do involuntary pay cuts. We kept it voluntary and led the way with 100 per cent cut for founders for six months. People could decide anonymously and we communicated there was no pressure, no one would be judged." Amazingly, a number of employees stepped forward and volunteered for pay cuts. Founders and boards reciprocated with additional option grants to employees who exhibited this selfless behaviour. By October, the recovery was visible and it was heartening to see companies like Cars24, Meesho and others offer ESOP buyback schemes for employees.
Unfortunately, its not all good news. Clearly many sectors like travel, hospitality and ride hailing have still not fully recovered, so challenges remain for many startups and their employees. Hang in there.
A personal highlight this year has been the creation of ACT Grants. Hundreds of volunteers across the venture capital and founder ecosystem came together to create a platform that gave grants to high impact initiatives to fight the virus. This is probably the first time in the world that an entire startup ecosystem came together to help the community deal with this crisis. Firms and startups that compete ferociously put their differences aside to pool networks and resources to do the right thing. Our ecosystem will be more collaborative going forward.
Prepare To Go Big
Many companies used 2020 as a transition year to prepare for bigger and greater things. Companies like Freshworks leveraged downtime in 2020 to build leadership team, launch new products (CRM) and strengthen their systems and processes. Many businesses lost a quarter or more to Covid but strengthened their foundations so that they could accelerate. We at Sequoia India believe that the next two to three years will be transformational for India's start-up ecosystem as many companies will go public in India and on global exchanges. These IPOs will be major milestones in India's startup journey.
A Brighter Tomorrow
As we put 2020 to bed its encouraging to see Pfizer, Moderna and Astra Zeneca vaccines being rolled out. The pharma industry has come through in its 'crucible moment' by delivering vaccines for the world in record time. There will still be a phased vaccination schedule across segments (starting with healthcare workers and the elderly) and return to normalcy will vary across countries. It is critical we stay cautious and patient. Complete economic recovery will take longer than we like and there will still be third and fourth waves. Our resilience and patience will be tested but its important to hold on to lessons learnt in 2020 and keep the faith.
(The author is Managing Director, Sequoia India)
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