By Ajmal Khan Yousafzai
ISLAMABAD: The National Incubation Center (NIC) has launched report entitled ‘Impact of COVID-19 on Pakistani Startups and The Way Forward’ here on Tuesday. According to the report, as startups across the world struggle to sustain themselves during the COVID-19 pandemic, Pakistan is no less impacted. Many businesses have come to a grinding halt, some have even shut down, while most are struggling to minimize costs and keep cash in reserve.
Report reveals that prior to COVID, sector-wise breakdown of total early stage deals revealed that E-Commerce, Health-Tech and Ed-Tech were the most popular sectors to attract investments. As the pandemic continues to spread, and the world continues to practice social distancing, and the vast majority of countries are in lockdown; small businesses, startups, and entrepreneurs are one the most vulnerable economic groups to be directly affected by the situation.
The rising economic uncertainty is posing a significant threat to startups across the globe, making it imperative for governments and relevant stakeholder organizations to move quickly, and help sustain small businesses. It stated that COVID-19 is the worst human tragedy to have struck the world in decades, affecting millions of people across the globe. The pandemic not only has serious implications for people’s health but is also significantly affecting businesses and the economy.
The effects of the pandemic are and will continue to reshape the global operating environment for years to come. According to survey results, 28% of startups claim that with term-sheets about to be signed, investors are backing off, while 22% of startups have reported delays in transfer of funds (with signed term-sheets). The overall decline in investments, if continues over the months, would have serious consequences for many startups, with almost 90% of startups reporting cash runway for 6 months or less. Only 10% startups report cash runway for more than 6 months, with only 3% reporting runway for more than a year.
Where there has been an overall decline in investments (with 32% startups reporting reduced investments), yet local and international VCs are expressing interest in certain verticals, which are expected to grow, as the world transitions to the new normal. Series Panel Discussion hosted by the National Incubation Center, some leading national and international VCs discussed their investment plans in Pakistani startups for the near future Extend your runway Startups need to avoid putting themselves in a position of needing to raise capital during an extended downturn, and reduce future financing risk.
Report suggested that seek possible fund raising opportunities While there are greater chances of investors shying away from investments, yet many are considering this an opportunity to get good deals. It added that be realistic in terms of expectations regarding valuation, and average ticket size of investment, as size of an investment round may be limited and look for possible referrals for reaching out and connecting to potential investors.
Report further added that strategize, and communicate your long-term plans to investors, be honest in sharing the pandemic effects on your startup, with investors. Provide a clear picture of company’s liquidity and cash flow position, with details on how you are managing your liquidity in the short-term. Be clear on, and communicate your long-term plans for growth, rather than a short-term COVID response strategy. Focus on R and D Startups having 3-12 months of cash runway should shift focus to product development, improve internal processes, and stay connected to customers, it stated.
