Ceasar Nyagah // The impact of COVID-19 on startup investing

Ceasar Nyagah // The impact of COVID-19 on startup investing

With an upward growth of investment in many startups between 2018 and 2019, 2020 looked like a promising year for startup fundraising.

In 2019, African start-ups raised over US$ 2 billion in funding being an increase of +74% YoY from US$1.2 in 2018.

However, with the ongoing pandemic in 2020, this trajectory might change as the pandemic forces most VC Investment firms slow down their investment pace.

This has been brought about by the protective measures enacted by Governments across the world, that has seen most movements within countries paused for now and the introduction of more stringent travel restrictions.

These new restrictions have made VC investors unable to carry out on-site due diligence.

This, in turn,  customer spending habits are affected however we may finally see e=commerce really take off.

In a webinar held earlier today on the impact of COVID 19 on VC Investing, with Ceasar Nyagah, Senior Associate at Partech Partners a global VC firm investing at the seed, venture, and growth stages, who are also a member at Nairobi Garage Kilimani,  Ceasar said that there was a lot of uncertainty about how COVID-19 will change the startup investment climate in the coming months as investors try to adapt to the current environment.

Here are some key takeaways from the webinar: Visibility into the future is very unclear, therefore expect a slowdown in investment processes and decision.

Seed and pre-revenue stage investing will likely see an increase, as investors look to Founders that come up with innovative solutions in these times.

VCs with existing portfolio companies will first and foremost focus on supporting their portfolio companies. The objective will be to ensure they have adequate liquidity to make it through the crisis and so they make may some follow-on investments in existing portfolio companies and fewer new investments. During this period, VC firms will also offer resources and guidance to startups. Due to valuations being dependent on public comparable in the public markets, and with some sectors seeing reduced multiples,  it would be prudent to expect some downward pressure on valuations.

When asked what advice investors are giving to startups to navigate the current situation, Caesar said that startups should aim to reduce cash burn and increase runway as quickly as possible.

He also added that innovators and entrepreneurs should look for opportunities in this crisis and innovate their products around that.

This is because, after this period, investors will be out to look for startups that were resilient enough to survive these months of uncertainty.

While many startups may have already mapped out 2020 plans, Caesar advised that now is also a good time to reevaluate operations to reduce costs.

Additionally, he suggested that startups make customer retention and closing any open deals a priority in the short term.

During this period, Ceasar suggested there might probably be a shift in the investment focus as more and more seed Investors come on board looking for early potential winners innovating in the Covid-19 environment.

On the positive side, Ceasar said that Edtech, e-commerce health and Medtech companies could be gaining both more traction and funding as the demand grows in these areas as people stay and work from home.

However, even with the hard times, there should be hope and companies should use this period to position themselves in future. 

On the positive side, every company is impacted by this crisis, whether or not the demand decreases or increases.

What will count at the end of the day again is the resilience of the business models, the resourcefulness of the teams, and responsible cash management of the companies are put to the test.

This is also an opportunity to start a new company that addresses the real needs of the world.