“Do as I say”

Ten top venture capitalist firms wrote an unsigned “open letter” to Indian startup founders, offering a set of best practices to survive the impending nuclear winter of funding. 
As we weather through this incredibly tough time, we as investors are trying to do what we can in our capacity to help steer our founders through these uncharted waters.
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A majority of these learnings have been gleaned from in-depth conversations with founders across our collective portfolio and our collective experience of navigating crisis situations over the past several decades.
Mostly sound advice—plan for multiple scenarios, cut down marketing spends, freeze hiring, negotiate lower rentals, institutionalise WFH rules and culture.    Their advice on fundraising, however, was a sobering read.
Assumptions from bull market financings or even from a few weeks ago do not apply. Many investors will move away from thinking about “growth at all costs” to “reasonable growth with a path to profitability”. Adjust your business plan and messaging accordingly.
Valuation multiples will be reset. This is because many investors perceive there is much more macro risk today and public markets are now valuing companies differently than a few weeks ago.
The authors—Accel, Bessemer Venture Partners, Chiratae Ventures, Kalaari Capital, Lightspeed, Matrix Partners India, Nexus Venture Partners, Omidyar Network India, SAIF Partners, and Sequoia Capital India.
Wait, wait. Lightspeed and Sequoia? Lightspeed and Sequoia?!
Let’s rewind to July 2019, when Lightspeed made history of sorts by making close to $1 billion by partially selling its stake in hotel platform OYO.    Who did they sell to? Why, to OYO’s founder Ritesh Agarwal.   You know who else sold $500 million worth of OYO shares to Agarwal? Sequoia.    Normally, people raise their eyebrows when large VCs sell $1.5 billion of stock back to founders. “How on earth is this even financially possible,” some may wonder. But in India, the move was met with effusive praise.
“Only founders have the long-term horizon to build institutions,” said Anand Lunia, managing partner of early stage investment firm India Quotient. “We need companies to go to IPOs. And for that founders need higher equity and control. This is a very elegant way of giving control to founders. While Ritesh is the star here, let’s not miss the role of the VCs here who have supported such a transaction.”​
🤷🏾‍♂️🤷🏾‍♂️🤷🏾‍♂️                 Anyhow, a hat tip to Lightspeed and Sequoia for their timing. Because here’s what happened after they cashed out of OYO:   “SoftBank-Backed Oyo to Cut About 5,000 Jobs in Overhaul” “SoftBank-backed Oyo lays off thousands across India, China” “Oyo China operations are on the brink of collapse” “$10bn hotel startup Oyo furloughs most UK staff amid COVID-19 slump” “Oyo loss widens to $335 million”
And Lightspeed and Sequoia? 
Between them, the partners and bankers of the two firms pocketed a cool $400-500 million. Lightspeed’s Bejul Somaia was even anointed as the investor with the “Midas Touch” by Economic Times, India’s largest selling business newspaper. 
“To have my work recognised by the jury means a lot, especially as the venture business is one where it is hard to know how you’re doing for a very long time. But the true heroes in our business are the entrepreneurs — they are the visionaries who dream about a future that looks different than the status quo, and from whom we learn everything we know. I dedicate this award to each and every entrepreneur I’ve met over the past 12 years,” Somaia said.
And Sequoia? 
It’s raising $7 billion for new venture funds
Sequoia Capital is seeking to raise about $7 billion for a set of venture funds, according to a person familiar with the situation. The investment vehicles are the latest in a series focused on China, India and the U.S.
The effort marks a major fundraising push at a time when many investors are taking a cautious stance. The coronavirus pandemic has sent stock markets tumbling and has economists warning of a global recession. Sequoia, a firm with a nearly 50-year track record whose funds are typically oversubscribed, is better suited than many rivals to raise capital in this environment.
It’s a good thing then that the open letter carried a disclaimer.
“This article is not a substitute for professional, management, financial, legal, medical, investment or regulatory advice. You should not act, or refrain from acting, on the basis of this information without doing your own research and seeking appropriate professional advice.”
Why do I use this as an example of systems thinking? Because it highlights the perils of stakeholders in an ecosystem that doesn’t keep a check on excesses or suspect behaviour. Where founders stay silent, investors slap each others’ backs, journalists eschew common sense, and media houses dole out celebratory awards.    My co-founder Sumanth pointed out the incestuous nature of such behaviour in this tweet thread last October.    Here’s Arundhati with the next section.
ESOPs Fables   Remember how we said yesterday that a rush to sell shares in unicorns via secondaries would lead to a collapse of ESOPs as a tool to retain employees?
Entrackr reports that Pravin Jadhav, the CEO of Paytm’s* mutual fund platform Paytm Money, quit over remuneration and ESOPs. 
It’s a cautionary tale for senior leadership of all venture-funded companies, who may soon find their ESOP value watered down in the aftermath of the pandemic. ESOPs at Paytm range between 3-5X of a senior executive’s cash salary. 
Nadine and Shreedhar have the next section.
How big a stimulus does the world need?    In order to beef up its Covid-19 relief package, the Indonesian government agreed to a historic and risky step. It’s going to let its yearly budget deficit widen to more than 5% of the GDP until 2022. That wasn’t legally possible before. The budget deficit was capped at 3%, a fiscal discipline measure Indonesia imposed on itself after the 1998 financial crisis.    Meanwhile, the UN calls Covid-19 the biggest threat the world has faced since World War II. It says at least 10% of the global GDP would be needed to stage a “large-scale, coordinated and comprehensive multilateral response”. This is much higher than what countries have committed till now.    The US has committed a mammoth $2 trillion stimulus package, which is 10% of its GDP, the highest globally.    India, on the other hand, has committed only 2% of its GDP.   The report notes that developing countries may not be equipped to deal with the crisis. Developing countries spend only about 2% of their GDP on health, compared to the global average of 4.7%.    But well, unless the virus is destroyed by everyone, it’s destroyed by no one.    Over to Praveen.
Thanks but no thanks, say telcos   Last week, the Cellular Operators Association of India (COAI) wrote to the Department of Telecommunications (DoT), India. This is, more or less, what it said:
Our networks are under heavy load. Please help. Give us some more spectrum, temporarily, just to manage the load.   It’s been nearly two weeks since everyone in India has been at home—watching Netflix, taking Zoom calls, and joining Houseparty. What happens? Networks get clogged, naturally. That’s the first-order effect.   Yesterday, a press release from the COAI hit our collective inboxes. This is what it said, again paraphrased:   We don’t need the additional spectrum anymore. Managed. Thanks.   The telcos say that they don’t need the spectrum anymore because they did other things. Streaming services reduced their content from high definition (HD) to standard definition (SD), sealed towers were brought back on line, and some redistribution of traffic on the network happened.   Still, its additional spectrum. Why would telcos turn it down?   I asked Pratap, our staff writer and expert on all things telecommunication.   Pratap says it’s not that straightforward. Using the additional spectrum, if it is allocated by the government, will not be a cake walk, and will require additional spending by operators. And if the 21-day lockdown is extended, operators may have to resort to traffic management practices, i.e. prioritise one traffic over another. And for that they’ll need approval.   From whom?   The Telecom Regulatory Authority of India (TRAI).   That’s the second-order effect.   Telcos and TRAI have always had a…complicated relationship. On one hand, TRAI is the regulator that holds the keys to their fortune. And has lent a helping hand during rough times. But in other circumstances, it has dragged them to court and insisted they pay fines.   Plus, there’s the tiny thing that the largest corruption scandal in India’s history, to the tune of nearly $30 billion, which was a significant factor that led to the UPA government’s ouster was…around arbitrary allocation of telecom spectrum. You may argue that the current circumstances are different, but it’s pretty reasonable to think that nobody wants to open that can unless they have to.   But what you should open is our story in the India edition that’s published today at 8 AM IST. It’s by Pratap, and it’s about the battle inside telcos to create bandwidth to cope with the overwhelming load.   It’s a fantastic story. Just remember to visit our website or our app to read it.
Covid-19 tests businesses. In deeper ways.   Some tragic news emerged from Thailand yesterday.
Pakpoom Vallisuta, chairman of the Quant Group and a financial adviser for CP Group, has passed away from coronavirus infection. Four weeks ago, Pakpoom was one of the executives who traveled to the United Kingdom to close down the US$10.6 billion deal to take over Tesco’s businesses in Asia.
If you haven’t heard of the Quant Group, they are Thailand’s leading investment bank. And their chairman is tragically gone thanks to the coronavirus, right when he was negotiating one of Southeast Asia’s largest business transactions with the third-largest retail company in the world.   Also, if you are a company, and if Covid-19 can impact anybody in your company and incapacitate them in a matter of days, what’s your backup plan?   That’s an unseen way in which the novel coronavirus is testing businesses. By forcing them to adopt business continuity practices. What happens if your CEO is affected? What happens to the business? Make a plan. Just in case.
From the moratorium to the sanatorium   In yet another tale of the lack of systems thinking and clear communication from Indian regulators, Deepak Shenoy of Capital Mind deconstructed the Indian reserve bank’s three-month moratorium (“stopping an activity for some time”) on all term loans. Remember, the moratorium’s aim was to help people in these tough times.
RBI has made a cryptic statement that has been read something like: You don’t have to pay EMIs for three months.
This is a misconception. RBI said nothing of the sort. Firstly, if you are planning to not pay up your loan or credit card bill, there will be consequences and in credit cards, very hefty consequences.
Banks have the right (but not the obligation) to allow a moratorium of three months. Means your bank may not allow it, but my bank may.
Interest will continue to accrue. Meaning, you’ll pay interest on the outstanding loan.
There’s no relief here!
It’s a cash flow relief. Not an interest waiver. Interest waivers have to be given by the government, not the RBI. And the government doesn’t seem to have the money.
“The government doesn’t seem to have the money.”
We have a new site   Beyond the First Order. Our product and engineering team built it in two days. 
Reader Responses   To “Kurzarbeit”
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“Well written but incomplete. The line between cut in wages and pink slip in certain Industries which are the worst affected depends entirely on the strength of the balance sheet with revenues drying up.    We are from the hospitality management Industry with a peak of over 700 unit and corporate employees on our rolls and another 400 on Owner’s rolls.   We have zero borrowings.   With revenues trending to zero at some point the Lenders do not see us as a good risk in high risk times.   We explored options and figured that letting people go on leave without pay is the worst and best option.”   MG
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“I am not too sure if laying off is a better strategy even though prima facie it seems that the performers are retained and the non-performers are laid off. Because there’s also a possibility that in the guise of low productivity the companies are terminating employees as they can’t afford them anymore during the ongoing slowdown. Because they had not factored this in their  indiscriminate/reckless expansion plans when the going was good. In fact I believe that this retrenchment exercise can actually have an adverse impact on the morale of the remaining employees which may also result in them leaving as they don’t know if their turn is next.”

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