Startups gear up for a world drastically changed by Covid-19

Singapore

WITH a Covid-19 vaccine signalling some light at the end of the tunnel, startups must now prove they are ready to capture the opportunities presented by a world drastically changed by the pandemic, said industry players.

E-commerce and healthtech companies face the challenge of maintaining momentum past the lockdowns, while startups in other sectors can capitalise on the second- and third-order impacts of the pandemic, observers told The Business Times.

"Many of the problems that existed before Covid-19 - from challenges confronting smallholder farmers to the under-banked in South-east Asia - are still here. Many are possibly exacerbated by Covid-19," said Derrick Chiang, chief executive of innovation catalyst firm Padang & Co.

"In other words, there are many problems to solve and new opportunities accelerated by the massive disruptions we've seen last year."

Partnerships between startups and corporates could pick up in 2021. Mr Chiang believes that large corporations, having set aside some of their innovation agenda in 2020, will want to quickly get things back on track and find partners to accelerate the development of solutions.

Startups that thrive in the year ahead will likely be those that have kept an eye on what the second- and third-order impacts of this pandemic will be, said Jennifer Ho, principal of venture capital firm Integra Partners, formerly known as Dymon Asia Ventures.

The first-order impacts were straightforward - travel shutdowns, remote work and a shift for retail to the online sphere. The rapid adjustments created a sudden profusion of opportunities for startups in e-commerce, logistics, health tracking and digital payments.

"Now, the second- and third-order impacts are coming into play: the rising importance of cybersecurity, the diversification and increased complexity of supply chains, the increased emphasis on food security, and the merging of real-life and digital identities especially as we need to track everyone's real-time vaccination statuses," said Ms Ho.

Software startup Tramés, for one, has been closely monitoring the changes in global logistics. While supply chains have long been fraught with fragmented manual processes exacerbated by the many stakeholders involved, the Covid-19 pandemic has been one of the most disruptive events in recent history, said CEO and co-founder Kevin Lim.

"Fluctuations in supply and demand led to capacity constraints that made ocean freight operations harder," he noted.

Tramés has been developing a collaborative platform that increases visibility across end-to-end trade and transportation operations. Mr Lim said that by allowing data to flow easily across ecosystems, stakeholders can anticipate and prepare for any delays or challenges that might impede shipments.

Meanwhile, tech talent recruitment startup NodeFlair has expanded its services to include employment for contract roles that typically last six to 12 months.

The company used to operate on a more "self-serve" marketplace model to connect employers with job seekers looking for full-time roles. A larger percentage of successful job matches happened between foreign candidates and Singapore firms.

"However, with Covid-19 and the borders closing, we made some changes to focus almost fully on helping local talents instead," said co-founder Adrian Goh.

NodeFlair has also started providing more end-to-end services to job seekers and companies throughout recruitment process.

As startups in South-east Asia head into 2021, industry players are optimistic about a pick-up in fundraising to fuel their survival and growth.

Funding requires trust from investors and the markets, and markets dislike uncertainty, said Hanno Stegmann, partner and director at BCG Digital Ventures, the venture incubation unit of the Boston Consulting Group.

"So the news that markets and investors are getting more confident, and that there's a light at the end of the tunnel, is definitely a big boost for the entire economy and for startups," he said. "I think it will also accelerate this big trend of investors being interested in new digital propositions."

Startups in South-east Asia raised US$7.7 billion in 2020, inching up 5.5 per cent from US$7.3 billion in 2019. But deal volume fell 19.7 per cent to 511, according to data provider Preqin.

"Compared to what we were all expecting in March last year, the (startup) fundraising and valuation environment in 2020 actually held up pretty well. Deals got delayed, but many got done," said Ms Ho.

There is likely to be heaps of capital still to deploy - venture capital firms are in the market to raise US$8.4 billion for South-east Asia, according to DealStreetAsia's Q1 2020 review.

Ms Ho added: "The fear of not being able to raise capital has spurred a lot of startups to take a hard look at how to do more with less, so I think we actually now have a number of startups which are leaner and meaner machines than before... and well-positioned to complete successful raises next year."

On the flip side, a number of startups saw the end of the road in 2020. Some, like honestbee, were dragged down by poor leadership and corporate governance, while others such as car-sharing firm Smove and restaurant ordering startup Eatsy had their demise accelerated by the pandemic.

These are all part and parcel of the startup world, according to industry observers. Timothy Chen, executive director of asset management and financial services firm ICH Group, said the liquidations will not have a huge impact as "the whole startup ecosystem is built around the concept of learning from failure".

The silver lining to the crisis is that many displaced individuals will have no choice but to consider how to use their skills and knowledge in entrepreneurial ways, said Mr Stegmann.

The downside is that there are some impacted industries that just needed more time to develop, said Amra Naidoo, co-founder of accelerator venture firm Accelerating Asia.

"A lot of deep-tech solutions are very investment capital-heavy. Some in the travel industry are not necessarily bad businesses - it's just bad luck," Ms Naidoo added.

Observers largely agreed that failure is something that needs getting used to, regardless of circumstances.

Mr Stegmann pointed out: "We may have lived for a very long time in a bit of an untypical and skewed market where there was so much support, so much success and so much money that founders and investors both got too much under the impression that there's only growth, and no failure and risks attached."