How Covid-19 Has Changed The Way Venture Capital Firms Invest
The recent increased activity of venture capital firms shows there is still an appetite for investment in Asia’s startups despite the coronavirus pandemic, albeit with more caution taken.
Venture capital investment activity dropped significantly in the first quarter of 2020 due to uncertainty around the coronavirus outbreak. But market analysts saw investment in startups regain speed as early as Q2—particularly in Southeast Asia.
Part of the reason some investors are so bullish is the part the pandemic has played in catalysing digital adoption; trends that were predicted to take years to emerge are happening over months, and new business models are emerging to help us thrive in the new normal.
Moreover, travel restrictions have given startups and investors more time to get to know each other virtually. For the VCs, this means being able to do more reference checks and Zoom calls with startup teams.
Here, three investors from the Gen.T community weigh in on how Covid-19 has shaped Asia's investment landscape.
Focusing on new sectors
Not all industries have had it bad during the pandemic. Sectors such as healthcare, artificial intelligence, robotics, e-commerce and fintech have all seen rapid growth as a result of the coronavirus.
Kelvin Lee’s private investment platform Fundnel, for instance, successfully closed two deals in ed-tech and health-tech in the last few months. With the pandemic raising people’s environmental awareness, Lee adds that companies addressing long-term global issues such as the climate crisis and food security are also gaining investor interest during this time.
End of the cash-burning era
The pandemic marked the end of an era where VCs focus solely on a startup's growth trajectory as a measure of its investment appeal, says Pahrada Sapprasert, who is the co-founder and a partner of 500 TukTuks, the Thai iteration of early-stage venture fund and seed accelerator 500 Startups.
“Before this, investors tended to neglect other important metrics when assessing a startup deal, such as profitability,” she says. “In order to achieve this hyper growth, startups, in turn, burned so much money from their fundraising to increase users or to expand locations, while running negative on unit economics.”
Today, Sapprasert looks for startups that are more resilient, sustainable and have a clear path to profitability. “The coronavirus outbreak has convinced investors like myself to choose a founder who is handling the crisis well. That is, someone who is decisive enough to reduce costs where necessary and willing to do whatever it takes to keep their company alive.”
Lee also points to a startup’s agility—“[a founder]’s ability to pivot their business to meet the needs of the current climate”—as another highly sought-after trait that investors look out for.
See also: This Med-Tech Entrepreneur Is Tackling A Silent Killer
Investing for the long-run
The acceleration of digital trends induced by the pandemic also means the future looks brighter for investors such as Roderick Purwana, who is the managing partner of Indonesia-based SMDV and also a partner at Singapore-based EV Growth—both venture capital firms.
“The crisis has been bad for everyone, including VCs like myself, in the short-term due to economic contraction. But I believe the mid- to long-run impact on the investment landscape will be positive,” he says. “This is largely because digital adoption has been accelerated worldwide. What would have taken five years to happen will now probably only take one to two years.”
While investors are now more cautious with their funds due to the current uncertainty, Purwana says investors, him included, are “cautiously excited” about the opportunities available now and in the future.
See more honourees from the Finance & Venture Capital category of the Gen.T List.