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Startups that survive COVID-19 will come out stronger than ever: Q&A with Surge’s Rajan Anandan

Surge is currently running its third cohort involving 15 startups from Southeast Asia and India.

Managing Director Surge and Sequoia India Rajan Anandan. Picture courtesy of Surge.

Starting a startup is easy. Ensuring that your company attracts investors, has a solid team, and has a sustainable business strategy is a different matter altogether. Research by CB Insights found that 70% of upstart tech companies fail, usually around 20 months after their first financing round.

Sequoia India, one of the country’s most popular investors, cuts checks for what they see as promising early-stage tech companies. In March 2019, the venture capital firm launched Surge, a rapid scale-up program focusing on startups in Southeast Asia and India.

The 16-week Surge provides startup founders with up to USD 2 million in seed capital and various workshops led by experienced mentors. At the end of the program, founders will have the opportunity to present their business plans to a larger set of venture and corporate investors at UpSurge, a series of networking mixers and one-on-one meetings. So far, the program has helped 110 founders from 52 startups spread across six countries. Its third iteration is taking place right now, attended by 15 startups working in various sectors.

KrASIA recently spoke with Surge’s managing director, Rajan Anandan, about how the program is steering early-stage startups hit by the COVID-19 pandemic, and what the future may look like when companies need to weather unseen crises.

KrASIA (Kr): What qualities should early-stage startups have in order to join Surge?

Rajan Anandan (RA): Surge looks for mission-driven founders who want to build impactful, enduring companies for their region—or for the world. We want to work with promising seed-stage companies that are going after large market opportunities, and we look for founders who are both authentic and ambitious—those who think “team first” and have a learning mindset.

Kr: Surge’s third cohort is being conducted virtually due to COVID-19. How is that going?

RA: Surge launched last year as a high-touch, in-person program, but has now gone totally online due to COVID-19.  We’ve been working hard to make sure that a high level of interaction and personal touch remains. It’s been a big change bringing the program completely online, but we are really encouraged by the level of engagement and commitment from our current cohort.

Our core curriculum for Surge remains unchanged. We focus on the fundamental elements of building an enduring company, which are timeless concepts that remain constant regardless of the market cycle.

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Kr: Have there been any adjustments in the curriculum to address new problems posed by the pandemic?

RA: We’ve added COVID-specific content, which we’re also sharing with the broader Sequoia India portfolio companies. We recently launched a COVID-19 microsite, which pulls together initiatives and advice from across our network, to serve as a resource for founders and their teams during the challenging months ahead.

Team members from Sequoia India and Surge have also partnered in a personal capacity with a group of investors and founders in India to launch ACT, a fund that provides grants to companies developing original solutions to combat the spread of COVID-19 and the economic fallout that’s ensued. Our focus at this time is to help founders across our portfolio companies navigate and survive this crisis.

Kr: This pandemic has lasted for months and will continue for some time. How will this affect UpSurge? Do you think sustained social distancing and lockdowns will impact early investments for Surge’s current cohort?

RA: Surge companies have shown a lot of promise—and this is reflected in the feedback we are getting from the market and the strong interest from the investor community. The first two cohorts have raised over USD 250 million in follow-on rounds.

Given COVID-19, we plan to conduct the upcoming UpSurge entirely online. So far, we have a lot of interest already.

Surge was designed with open architecture in mind, and 80% of Surge 03 companies already have co-investors in them. The early feedback from investors in the ecosystem has been very positive with respect to our third cohort. And with VC firms reimagining the way they do business in the new world, we are confident that we can look at an online-only UpSurge in a few months.

Kr: What lessons can early-stage startups learn from this period, especially when it comes to managing cash flow and ensuring survivability?

RA: It’s always been important for startups to have adequate funds to last through tough times. This crisis has created a heightened sense of appreciation of the need to not just have runway, but ideally have 24 months of it, in the event of a large crisis like this. The other important lesson is of unit economics. Having strong unit economics has always been the underlying driver of an enduring company. But at a time like this, it is the foundation for survival and is a strong indicator of whether or not a business will thrive over time.

Finally, it’s extremely important to understand whether a startup is building must-have products or nice-to-have products. Tough times like this really separate one from the other, and startups will know pretty quickly how strong their business is. If your customers stop buying or using your product, that may mean you didn’t have a must-have product. And that is something you may need to change if you want to build a truly enduring company.

Kr: How did you prepare your alumni for a crisis like this?

RA: “The strongest steel is forged in the hottest fire.” This has become something of a motto for the Surge 03 cohort. They’re building new companies in one of the most challenging periods in modern history and they know the road ahead will be rocky. But their eyes are fixed on the horizon and they’re full of ideas on how to solve problems that are going to be relevant for the next several years.

We encourage startups to imagine and reimagine their business keeping in mind different scenarios, including the worst case. And this crisis is providing a crash course for early-stage founders on how to handle adversity.

In a period like this, it’s very important for founders to be thoughtful, incredibly decisive, and empathetic. Be thoughtful about how different scenarios are going to impact your business and what you want to do, decisive about what actions you want to take now to ensure survivability, and empathic about how your team and those around you are coping.

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Kr: A report by Startup Genome said that startups tend to receive funding more often following a recession, though the amounts might be smaller than in normal times. Do you agree?

RA: The best companies are almost always able to raise funding, no matter what the situation is. In a crisis of this magnitude, there is always a flight to quality. So we will see the best companies get even more attention than they normally would.

Some of the largest companies were built following a recession. At Sequoia too, some of the biggest partnerships were formed after the toughest times.

Kr: What will be the it sectors that investors are keen to invest in? Which sector’s early-stage startups would Surge like to “supercharge” right now?

RA: In this current climate, we’re seeing human behavior and human needs changing as our external situation changes. The pace of digitalization in India and Southeast Asia is being accelerated and companies are adapting rapidly to match this change. We believe that Surge would focus more on any business that is using digitalization and technology to innovate in their sector. This may include but not be limited to education tech, health tech, SaaS, SME tech, B2B e-commerce, D2C brands, and agriculture tech.

We are also looking closely at businesses that cater to SMEs as they are the foundation of the economy in Southeast Asia and India. Innovation in this segment, especially the digitization of SMEs, has huge potential. Khatabook from Surge 01, who recently announced their Series B funding, has been hugely successful in this space, digitizing 8 million merchants across India’s MSME space and helping redefine how they conduct their business.

Kr: Some Southeast Asian accelerators have ramped up their programs by doubling seed funding and partnering with government agencies, probably to entice more startups to join up. Will Surge do something similar?

RA: Our focus is to build local champions that can have an extraordinary impact on their regions, on their countries, and on the world. And our intent is to find the best entrepreneurs who can do that at scale.

We believe that the combination that Surge provides—capital plus company-building support, content, and mentorship—is unmatched in this region. This is a strong attraction for founders who want to build legendary companies, and that’s what the founder DNA is at Surge.

The interview has been edited for brevity and clarity.