Covid - 19 & its implications on startup India
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17th Mar, 2020

With rapid evolution taking place in the business environment world over, we’re dedicating today’s #MatrixMoments episode to discuss and decode the implications of the Covid-19 on the startup ecosystem. Here’s how we at Matrix are thinking about it. Tune in to know more.

Rajinder:

Hi and welcome to this episode of Matrix Moments. Given the rapidly evolving situation in the business environment world over, we are dedicating today's episode to discuss Covid-19 and its impact on the startup ecosystem. Avi, thanks for doing this, appreciate it. We are going through an unprecedented crisis globally with the spread of Covid19. Any thoughts on the current panic? Is it warranted?

Avnish:

So they say we live in interesting times, I didn't realize it would become this interesting. I would say that there are times in life where a disproportionate response is the proportionate response. And in my lifetime, I think in most of our lifetimes we probably haven't seen something like this and I hope we don’t again, but we probably will so no, I don't think that is. Panic is a word that can be interpreted in a number of different ways. I think this situation needs a disproportionate response. I think we should include links. There was a Washington Post article about flattening of the curve, and stuff like that. Frankly, if you ask me the Indian Govt’s response early was very good but I am a bit wary that now it’s not enough, and this is a highly infectious disease and neither of us profess to be medical experts, but it's a known fact that one person can affect four people here. And there is a lot of people relying on heat and humidity. And by the way, I'm a believer in those theories, that heat and humidity will make it better, but even if it makes it better, the four can come down to two or maybe two and a half. What we really need to do is cut this number of people that can get infected by just increasing social distance, social isolation. I don't think we are doing enough of that. We should include that link, like I said to the Washington Post article and also there was a tweet from somebody about the situation in Italy and I'm a bit wary that we are where Italy was two, three weeks ago and you know what our healthcare system and our population looks like. So I think it warrants a very, very aggressive response from all of us, not just from the government over the next two, three, four weeks hopefully with that we will tide over it. But it may well get worse before it gets better. I think flattening the curve, social distancing, recognizing where things stand and not being either fatalistic or believing in destiny and all of that stuff you need to take action now. And that fundamental action from all of us is social distancing. We need to cut the number of infections one person can give another, otherwise, and he went in the wall, you're seeing this exponential curve and it generally starts with a hundred or 200 infections. In our case we are already at that number. You can argue that given our geographic dispersion and the population, it could even be a thousand and we may get a false sense of comfort as infections keep rising and then suddenly it'll explode. And so I think it's critical to take this step, I can't emphasize more. If there's one thing in life that needs to be taken seriously it’s this and six, eight weeks from now, if we all look like alarmists, we'll all be alive and happy. But if you are right, we will be in a much more difficult situation.

Rajinder:

Yeah, I hear you. I think, this is a message that we need to get out. I think social distancing is something, even I have not been practicing, in the right way over the last year.

Avnish:

That’s because you are a social animal, all of us are right?! I mean, I'm sitting here working from home, we'll talk about it. We are all working from home. I think it sucks. People make it sound great. I don't like working from home. I like working from work. But anyway, we'll come to that.

Rajinder:

How would you compare this crisis to the ones that we've seen before? Both here and outside India. And I want you to comment on both, what is the possible impact on just broader society economy and specifically for the startup ecosystem?

Avnish:

Look, obviously none of us have seen this before, right? So the economic impact is, is unclear. You're seeing the Fed in the US has cut rates to zero. People might compare it to global financial crisis. People might compare it to the dot com bubble. When were you afraid of dying? I think, this is very, very different. it is something that will ultimately make us all stronger. But this is a combination of a health and economic crisis. Now, I don't know the answer. There are theories floating around about V-shaped recoveries, which means very quick downturn and very quick upturn. And remember, you have to separate two things. Actually. Maybe three things -  health, financial markets and economy. And there are three theories on recovery. V shape, U shape and L shape. V shaped is this quick, deep, quick, deep back out. U shape this slow, slower down, longer you and up and L shape is you just stay  down. Like I said, I don't know the answer. I will tell you that when I compared to what you mentioned about the dot com bubble, global financial and this one, if it plays out the way it has played out in China, where six to eight weeks of deep pain, then what will happen is we will all see a recession that's given, you know, the US has cut rates to zero because that's what everybody assumes. So we will see a recession. But is it a onetime hit that we all take and move on from? I would say if it turns out like China where six to eight weeks later, factories are now coming back online, Apple's only retail store in the world is open in China everywhere else they are shut, right? If it turns out like that, tech and startups are going to see the shift because they can rebound very quickly. It’s by definition tech enabled. Some of the offline, depending on the industry travel, there may be some lingering effects. So they may be, U shape, I don't know where it ends up being L shape. I think it ends up being a L shape in the main economy if it just takes a lot longer. And then you start seeing business failures and then business failures as you know, have a cascading effect, whether it's debt or largely due to credit driven crisis. So the answer is that this one is much harder to call. I can see an argument for V shape. I can see an argument for L shape, as far as we in India are concerned the next three, four weeks will tell us which direction we are heading. If we continue down this linear path, that would be great. I'm afraid that may not happen unless we really hunker down and start practicing these social distancing norms and if that happens and the heat comes in end of April, mid-May India is boiling and there is no coronavirus, it's going to be a very rapid uptake for the tech and startup companies and it's almost going to be a huge sigh of relief. But I think the answer will be clearer in the next two, three weeks. And I think all of us individually have roles in it. Like I said, I can't overemphasize this social distancing, following those protocols, flattening the curve, it's no secret that our healthcare system is going to be less able to handle some of this. So far, I'm very impressed by the government, so we should now, stop looking to the government. We should start looking at ourselves.

Rajinder:

You Tarun and Vikram were traveling extensively in the US over the last 10 days when this all exploded and the situation just changed very dramatically. Both there and here. But how was it in the U S and how do you think that response in India stacks up to the response globally?

Avnish:

The response stacks up well, but I'm very worried that we are where the US was 10 days ago. We went there, people were socializing, everything was normal, and it's four stages, right? Again referring to that tweet, there’s the stage one, stage two, stage three, stage four. We are supposedly in stage two and people thought that sanitizing hands is good enough. Today it’s an exponential curve, it literally changed the day we were about to leave. And today which is four days later, the US is in crisis. The airports are trying to screen people, there's multi hour delays, flights are banned. I think India took a great actions proactively by the government early. They are much smarter. They are being advised by medical professionals. So I'm assuming there's a reason for a calibrated response. The only thing that worries me is when I see people partying and socializing and all of that over the last two, three days. Cause that's what I saw in the US and then suddenly now New York just today has shut down all bars, restaurants, pubs, Disneyland shut down yesterday, which has never happened before. So I think before the government needs to do this, if we practice social distancing, some of it won't come to pass. Most of Italy is in quarantine. So that's what I worry about on the one hand eternal optimists that our karma and and our heat and our humidity will help us. But on the other side odds are stacked against us with our healthcare system. So I think if we take more responsibility, we may actually turn out okay.We have an opportunity. And one of the WHO people were talking about that India has taken great steps better than the developed nations. I think now where the next stage of steps need to be taken and I'm surprised not more advisories are coming out for those, but at the very minimum it's common sense. So I would say we are where the US was 10 days ago and things blew up since then. And let's hope that same story doesn't repeat for us.

Rajinder:

At Matrix, we've taken some early steps, we're working from home and we’re doing this podcast from home, but aside from that, are there any changes for us?

Avnish:

First of all, I would like to comment on work from home, I mean I don’t like it, Like I was saying earlier, I don't like it. I think it sucks, but I think I have to adapt. So my two cents to people - and I heard, the Canadian prime minister is working from home. He made this comment, I think Fred Wilson made this comment that it kind of sucks but you have to adapt to it. The kids are home so we are trying to adapt and say that work from home, if it is an inconvenience, what is a positive you can come up promote it. Right. So we have a family workout regimen in the morning, which normally one would not be able to do with the kids running off to school. I have made it a point that I'm fully dressed as if I'm going to work, not with PJ's on and pretending to be at work. And I think that mindset is important and required. Apart from work, from home for us, we are in some ways so lucky we can actually get away with it. Right? For us, our remote work can work fairly easily. We still need to adapt. We are still investing. I think part of the way of fighting back is human spirit, right? So we have to continue to do our work, our life's work and our job. So we will continue to invest, work from home is one adaptation. We have to do other multiple things, this morning itself and you were on the call with a company meeting, so all our meetings are going to continue as is, how we do some of the other management of diligence and all will evolve over a period of time. But we are continuing to invest. I'm not going to turn around and say this is the best time to invest. And we are very excited because I think it misses the context a little bit, it's a bit tone deaf frankly, but I think, our job is to continue to invest in cycles. This is a very deep and steady cycle which has come out of it, but our job continues to be to invest to that and we are continuing to meet companies and we'll continue to invest on first principles basis. I think it comes off if I look at stakeholders, there’s obviously our employees amd not now, but as of last Wednesday or Thursday we had moved to work from home cause we have to keep them safe. Second is our founders and I think there we have to do more. I know we are going to be setting up more and more interactions with them. We have to figure out how we interact with the portfolio more and help them through this phase. And obviously third is entrepreneurs and the ecosystem and it's still easier to engage, which we will continue to do.

Rajinder:

Yeah. Actually on that topic, you know, founders in India, we've been having a few conversations across the portfolio and people are already thinking through, the actions to take not only today but also under different scenarios that may play out through this crisis. what is your perspective on an appropriate response today?

Avnish:

First of all, tactically let's share that BCG stuff that has been going on. You know, some articles also on work from, I think that is the easiest tactical part of it, right? How do you work best from home? But the BCG stuff also adds some good strategic planning parts of it. Where, how do you plan through something like this and it brings up business continuity. Coming back to your earlier question about comparing cycles other than health in most cycles, one has not had to think about business continuity in these startup situations. It was you are worrying about funding, you're worrying about other things, but you're not learning about how does a business continue? What is the key man risk? How do I have my sales peoples in continue? So I think that is a very tricky thing. We don't have the answer. We can be enablers to the answer. I think some of our peers have put out stuff. You should include the link to what Sequoia had sent out. I think Lightspeed did have a webinar if that is publicly available. We should, we should include a link to that because we have to come together in this now. Often I evaluate these things not as an investor, but also as an entrepreneur. I would say as an investor my view is clear that I would look at the various things like Sequoia sent about cashflow, spontaneity, how long can I go, all of that stuff. If I put on my entrepreneur hat I would be keeping those three recoveries in mind. Is it V, U or L? I don't know yet. Therefore, probably till end of this month, I would operate under the V shape scenario and I would say, what are the things I can do to move to variable costs? some companies are taking actions or deferring a column and saying, we'll make it back so you do a catch up not doing deep cuts. If this situation in India gets worse, now we know it will get worse. But is it getting into that nonlinear exponential kind of a situation? Then I would get more worried than I would move into my plan B, which would be probably more cards planning more for a U shape recovery and that would be watching through probably end of April, early may. And if things are really bad by then, then I would move into the L shape scenario, which would be mode survival. Possibilities are not probabilities. These are the possibilities. Like I said, I'm an optimist. I'm going to err on the side of saying that plan for a V recovery right now and assuming everything else kicks in, that's where we’ll end up. But as a business leader, you have to think through possibilities and you can’t get blindsided by them. And so I think in that situation I would just keep decent ideas in mind and have some clear plans on what would happen in each case, which by the way some of our companies have started doing already.

Rajinder:

This all makes sense, but it's still a lot of uncertainty, the situation is evolving pretty rapidly on the ground. Our cases, we know we are hearing, you know, how it's playing out globally and in India. You know, hopefully fingers crossed, it doesn't play out as quickly. But if it does then what should some companies do? What are the best practices? Should they be setting up PMO teams to figure out, you know, what the situation is on the ground to ensure us move this in business functioning depending on how things are playing out?

Avnish:

Clearly right. I think you mentioned that some people have already, there should be one designated person at the co-founder level who's in charge of this situation. I think that is a no brainer. It cannot be four co-founders are in charge in general of the situation the way it is in those of business. Right? So, I would be very clear that boss, one person in charge of this who has your confidence, who's thinking through all of this so that the rest of them are, by definition, you're all going into L shape. You will have to, the rest of the business has to have this flexibility and one person is constantly keeping their pulse to the ground. But like I said earlier, we have those BCG documents that we should share. I don't have all the best practices. We'll continue to share them as they come along. Hopefully, where we publish this, people share their own best practices, but absolutely there should be a PMO, but mostly importantly, one person at the cofounder level who's just in charge of authority, accountability, responsibility and just figuring this out. That’s the somber note, the positive note is, look, we have survived everything as a civilization, right? And if ever we were more ready to deal with stuff it’s now and especially as a country like India where we are at the top of the filed in pharma I'm pretty optimistic that if we just manage to play this out over a period of time, this is going to get much better.

Rajinder:

Thanks, Avi. I think this is an important topic and lots of nuggets fo, our listeners. Thank you.

Avnish:

Okay, good luck to everybody and let's make sure we all stay closely aligned and we'll get through it.