Startup Advice from Point72 Ventures: A Conversation with Ishan Sinha
I spoke with Ishan Sinha, Vice President at Point72 Ventures, the venture arm of Steve Cohen’s $14bn AUM hedge fund. Ishan shared his advice for startup fundraising and operations from a global, public markets perspective.
How are you guys thinking about the role technology plays in the world post-COVID?
Our team is doing a lot of work right now to come to a thematic view on what the world might look like post-COVID. It’s a tough question to answer given how unprecedented this situation is. You need to really make the distinction between a temporary lift in technology utilization versus fundamental, long-term behavioral shifts.
We’re beginning to see a few data points that give us conviction that there are indeed some more permanent tailwinds. I think COVID-19 has accelerated the digital transformation within the banking industry. In times like this, it’s become clear that tasks like opening bank accounts, applying for loans, and authorizing identities require manual work, often done in physical branches. COVID-19 proved that the infrastructure for moving to a digital-only system was not quite there yet, and we believe that a number of financial services start-ups can play a role in that transformation. My colleague Adam Carson did a deep dive on partners and vendors that players in the ecosystem can utilize in their digital transformation.
In terms of your specific area of focus, how is COVID-19 impacting emerging markets?
While COVID-19 has resulted in a common threat globally, each market is being impacted in different ways. Each country’s economy has idiosyncratic reasons for reacting to the economic shock, so it’s tough to make a generalized statement on how to navigate emerging markets at this time. We’re focused on monitoring things like the steps these governments took in curtailing the spread of the virus along with monetary and fiscal policy initiatives to help stimulate consumer and small business demand.
Our core thesis around COVID-19 accelerating digital initiatives holds true globally, though. Many emerging markets are still heavily cash dependent. With a health pandemic threatening their livelihoods, consumers don’t feel comfortable doing things like they’ve always done: going to ATMs, exchanging cash, or paying their bills at their neighborhood bodegas. Digital transformation doesn’t just rely on companies building out technology-forward solutions — it also requires consumers getting more comfortable in changing their own habits. We’re seeing this happen across the world. In Southeast Asia, digital banks in the Philippines are seeing a surge in transactions. In India, WhatsApp is launching financial services by partnering with ICICI. And in Argentina, our own portfolio company Ualá has seen monthly sign-ups double since the beginning of the quarantine.
What are some key learnings from the public markets that can be applied to earlier stage businesses?
The public markets, by the nature of being continuously marked-to-market, are inextricably tied to the macroeconomic situation. Equities are moving on policy decisions by our leaders, economic data releases, and so on. The private markets — and venture — is shielded from this noise, but that doesn’t mean that it shouldn’t affect a start-up’s business planning. You should be on top of decisions being made by the Fed and the White House and you should be tracking key economic indicators closely. It will help inform your financing strategy and hopefully give you more realistic assumptions on how to model revenue for the next 6–12 months. Given my public markets background, I’m part of a team that’s bridging the gap between all the macroeconomic data and insights out there and our entrepreneurs who are looking to make informed business planning decisions.
What metrics should startups be closely monitoring in light of the pandemic?
It’s no surprise, but we’re incredibly focused on cash management. I’m sure that every entrepreneur reading this has had multiple investors reach out to them about their cash positioning. You want to make sure that you’ve got ample runway and can manage your burn effectively for at least the next 12 months. The fundraising environment will undoubtedly get more challenging from here, so the companies that don’t need to tap into external sources of funding are well equipped for now.
We’re also focused on making sure that our entrepreneurs are stress-testing their 2020 and 2021 projections appropriately. Given Point72’s DNA as a hedge fund, we’re always thinking critically about risk and how to mitigate it. We’re thinking closely about customer churn and concentration in all of our companies’ business models and making sure that they’re effectively managing everything they can.