Global VC Exec: “Startups Were Used to Disrupting; Now, They Need to Respond to Being Disrupted”
Author: Yariv Lotan, Head of Strategic Sector Development at Start-Up Nation Central
Despite the challenging time brought on by the coronavirus pandemic, AgriFood-tech investors poured $8.8 billion into 798 deals in the first six months of 2020, according to AgFunder’s newly released Agrifoodtech 2020 Mid-Year Investment Review. That figure is expected to be revised upward to $10.5 billion, compared to $21.6 billion in all of 2019. Having said that, it is clear that the pandemic has affected the global AgriFood-tech ecosystem.
We sat down with Shubhang Shankar, Managing Director at Syngenta Ventures, to talk about how COVID-19 has impacted the AgriFood-tech investment landscape. Shubhang joined Basel-based Syngenta Ventures in 2017 from the company’s global strategy team, where he was part of the effort to develop Syngenta's digital agriculture strategy.
Question: What are the major funding trends you’re seeing these days?
Answer: “Contrary to previous expectations, the amount of capital going into AgriFood-tech has not declined; three months ago, we feared that capital would dry up like in the 2008 crisis. Fundamentally, I think this is because the current crisis doesn’t originate in the financial sector (i.e. it is not a liquidity crisis), which would have had an immediate impact on VCs; rather, this is a crisis that originates from the the demand side and this could have deep, long-lasting implications.
The fact that commercialization often lies many years in the future for many startups has shielded the sector from an immediate reckoning. However, as the long-term implications of the post-coronavirus world become clearer, I worry that demand changes could fundamentally change the assumptions on which certain investments were made and startups established. For instance, if the international travel industry remains in the doldrums till 2024, as the aviation industry now expects, do startups focusing on the leisure sector have a future?
I worry about the demand side of the economy more than anything else. As we know, the US has seen a 33% drop in its quarterly GDP, and the EU has seen a 12% drop – yet the stock markets are booming. I think this just illustrates the point above, that the crisis has its origins in the demand side and not in the financial sector.
In terms of demand for AgTech, I see a shift away from technology-led investments to market-led investments – the era of build a product first and wait for the market to be created is over. Now, the focus is much more around solving known problem. The global expansion of AgTech continues: large markets like India and Southeast Asia are seeing interest from international players like Sequoia. Deals continue to get funded.
Q: What are your tips for raising capital these days?
A: It is difficult to suggest anything that would have broad-brush applicability. On the one hand, we hear stories of startups folding up in the last few months due to coronavirus. On the other hand, we hear of companies that were expecting the worst and are instead seeing their adoption rates, revenues and profitability take off despite the crisis.
Based on my own observations, I think solid companies have continued to raise capital, even if the pace was not as rapid as they would have liked due to travel restrictions, longer timelines for administrative steps due to lockdowns in government offices, etc.
Therefore, I don’t think any company with stellar metrics has suffered because investors said, “sorry, coronavirus, I’m not deploying any more capital.” I think companies that had challenges in their business model that would have been indulged by patient investors in the past perhaps will now be forced to fold up; however, that’s mainly due to structural reasons within the companies.
Rather than worrying about capital availability in the VC landscape, startup founders should think about what would happen to their business from a demand perspective if the disruption to the economy lasts 12-24 months. How does your business plan hold up? Then, work backwards to figure out the implications on your fundraising – should you raise a larger round now? Or should you revisit things next year?
Q: What are your tips for founders navigating COVID realities?
A: You are the best judge of what you and your business need; be prepared to evaluate this on a weekly basis. The best experts on public health and economy are still struggling for answers, so unfortunately, no one is going to tell you what needs to be done. Don’t give up on innovation – I always believe that capital will find a way to fund the best ideas. Don’t assume that the world will go back to the way it was in February 2020. Be prepared to find out that COVID-19 wasn’t an interruption; it was a transformation. How does your business hold up if the new world is dramatically different? These are all tough questions but they’re part of the entrepreneurial journey.
Q: How has COVID-19 changed startups? A: The best answer is what a founder told me: “You realize that you signed up for everything” – all of a sudden, you go from obsessing over tech and customers to thinking about work-from-home policies. Another one said: “We are the ones used to disrupting. Now, for the first time, I need to figure out how to respond to being disrupted.”