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'Most small businesses have fewer than 15 days cash buffer' says Director of Growth Equity

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Shalini Rao, Director of Growth Equity for Generation Investment Management, joins Yahoo Finance Live highlighting concerns from small and medium business owners and the impact of COVID-19 on sustainable investments.

Video Transcript

MYLES UDLAND: I want to bring in Shalini Rao. She is the director of growth equity for Generation Investment Management. And Shalini, let's start with a roundtable you guys hosted recently about how small business-- small and medium businesses can really make it through this period and what some of your portfolio companies are telling you about the challenges they're facing and what you guys have been able to do so far to keep businesses at least afloat or maybe even, you know, kind of going forward with some of the plans that they had as we-- as we came into 2020.

SHALINI RAO: Yeah, thanks very much. I mean, I think what is becoming increasingly clear is that a global recession is very likely, and the US looks especially vulnerable. In a short span of time, the US will have gone from having one of the world's lowest unemployment rates to-- you know, we just saw the jobless figures-- perhaps one of the highest.

And the severity of this downturn could be catalyzed by, frankly, the inadequate support to the over 5 million small businesses across the US who represent over half of America's private-sector workforce. And so it was off the back of this realization that Generation convened a small-business roundtable, bringing together 10 leading entrepreneurs who work with over 5% of America's small businesses.

And I think, you know, three core findings came out of that discussion, really. First, speed is of the essence here. Most small businesses have fewer than 15 days of cash buffer.

Second, we need to make the public and private resources that are currently available far more accessible, and then we need to clarify eligibility rules so that we can ensure that this money is actually getting into the hands of those who need it. And then, you know, third, I think we need to form a united front on behalf of small businesses in order to ensure that the shape of the recovery here is, frankly, viable for the future economy.

JEN ROGERS: So given all the challenges facing small businesses, a number of your portfolio companies, right, they work with small businesses. You've focused on the future of work. So some of it is all about collaboration and harnessing technology. What does it mean for those companies? Like we've had the CEO of Gusto on before. Are you thinking there's going to be-- the uptake is going to be slower in terms of small businesses getting into the tech space that they need to be able to, you know, actually-- it helps them improve their bottom line in the end, but are they going to be slower to uptake to some of your portfolio companies?

SHALINI RAO: Yeah. I mean, you know, I think that we are of the impression that small businesses are undoubtedly going through a really tough time right now but that the recovery here will come eventually. And the question is more about using this as an opportunity to build back better and, frankly, create an environment and an economy that is equitable for all. And I think small-business adoption of technology will be a core pillar to that.

But also, you know, we at Generation will continue to invest behind providers who are enabling a new way of work. That fundamentally takes care of all stakeholders, including within small businesses and including their workers. You know, 86% of those most vulnerable to job losses right now are already making less than $40,000 a year. On the flip side, many of the essential service workers that we're seeing also fall into this financial category.

So I think out of that strange almost economic bifurcation, we'll actually find ourselves in a world where there are commercially exciting business models that return value to workers and investors alike, including at small businesses for sure.

MYLES UDLAND: And I guess to that point, Shalini, we've heard so much in the last-- you know, like on the Wall Street side, it's been all about ESG for the last 18 months. And, I mean, I guess we won't know for a couple of years until you guys raise a couple new funds or we see more businesses come to market, but do you-- do you worry that maybe some of the stuff that we're talking about here gets thrown by the wayside when there's such a retrenchment of everyone just wants to keep the lights on and concerns about sustainability become secondary or tertiary when you're in a real pinch like this?

SHALINI RAO: Yeah, so I'd push back on some of those assumptions, obviously. I think some of the pain points that we're feeling in the current economy are actually connected to a system that is not working equally and efficiently for all. At Generation, you know, we believe that we're in the early stages of a technology-led sustainability revolution that will provide a great opportunity to invest in new kinds of solutions. And it's that long-term time horizon-- you know, we're not looking at trends over the next 12 to 18 months. We're talking about sort of system-level-changing opportunities over the next 10 to 20 years.

And it's with that long-term time horizon that I think, you know, we'll be able to seize a ton of opportunity that's happening and already emerging in the market, and many of those providers were actually at the roundtable.

MYLES UDLAND: All right, Shalini Rao with Generation Investment Management, great to get your thoughts. Hopefully we can talk soon.

SHALINI RAO: Thank you.