Start-ups in India are walking on thin ice- such is the crisis of the times. The hitherto bustling sector is now a battleground for survival, amidst the ongoing Coronavirus pandemic, with companies resorting to extreme cost-cutting measures whilst fearing that the cash-reserves might run out before landing a suitable bout of funding. In this feature, we delve into the crisis that throngs India’s start-up ecosystem and how the stakeholders must come together in securing the future of the ecosystem.
Posed with fresh challenges, startups in India face turbulent times ahead- be it juggling tight finances or uncertain funding pathways ahead. The COVID -19 crisis has delivered a brutal blow to the economy, and start-ups are facing the biggest challenge of their times, in sailing through unprecedented times, laying off employees and ensuring that they have enough to sustain themselves- it is indeed a harrowing time.
According to a month-long online survey conducted in April by National Association of Software and Service Companies (NASSCOM), 9 out of every 10 startups have seen a decline in revenue. The survey was taken by over 250 startups over diverse sectors such as travel, healthcare, educational and financial technology, retail and others. COVID-19 is the single biggest challenge that India’s nascent startups have faced, with 92% of those surveyed reporting a decline in revenue.
For extending the runway, most startups are cutting back on excessive costs and some have resorted to pay cuts, furloughs or layoffs to contain costs till revenues are back. Many startups are pivoting completely or partially to newer business models in response to this pandemic to be able to emerge stronger from this crisis.”
COVID-19 AND ITS IMPACT ON FUNDING
With a remarkable decline in startup investments, especially in Asia, how will the present Covid-19 situation affect the fundraising and financial stability of the startups?
The tech startup ecosystem of the country is not immune to the havoc wreaked by Covid-19.
According to the NASSCOM survey, over 90% of startups face revenue declines. The decline in revenues is expected to be as steep as over 80 percent for at least 34% of startups. For the remaining startups (over 60%), the decline in revenues is expected to be more than 40%.
A revolution that has taken over the financial landscape, Digital Lending is the process of offering loans that are applied for, disbursed, and managed through digital channels, in which lenders use digitized data for credit decisions.
Digital lending platforms assess a borrower’s creditworthiness within minutes based on the data given by the customer. They make use of predictive models and algorithms to derive useful insights on the borrower in order to assess their creditworthiness and ability to repay the loan.
A survey by Praxis Global Alliance concluded that 37% of the Indian startup CEOs interviewed only had 6 to 12 months of cash reserves left in their bank. The widespread uncertainty in the market together with the restrictions on Chinese capital inflow in the economy has consequently led to an overall slowdown in the venture capital deal flow in the Indian startup ecosystem. Although some sectors such as— media and entertainment, Edtech, Hyperlocal essential services etc have seen unprecedented growth in demand, the overall impact on the ecosystem has been quite devastating.
HOW ARE COMPANIES TIDING OVER THE STRONG CURRENTS OF CORONAVIRUS?
Many companies are resorting to cutting back on costs. Layoffs, unpaid leaves and furloughs are some of the sad realities that have been resorted to, owing to companies facing the burn of liquidity.
Transitioning to newer business models: Since the crisis is unprecedented and neither investors, nor companies have seen anything like it, there is a growing trend of partially resorting to newer business models in a bid to counter the impact of the pandemic.
PINNING HOPES ON VENTURE CAPITALISTS
While treading on an unchartered territory in times as unprecedented as ours, many Venture Capitalists (VCs) will be focused on their portfolio companies, revisiting plans via bringing about reductions.
This will consequently lead to difficult decisions being executed, and leave many individuals negatively impacted by this pandemic. But the fact remains that startups will continue to need additional funding.
It would be extremely rewarding if the VC community chooses to investing in and help the next generation of category creators and disruptors blossom.
In funding the next set of emerging ideas during this downturn, it will lay the foundation for a new set of leaders to thrive and battle pain points in a number of categories that demand to be solved in the future.
FEATURED COMMENTS:
- Swapnil Shah, Founder and CEO, Freight Tiger
Being a neutral, end-to-end technology platform that empowers the industry and its key stakeholders, we have the opportunity to contribute in an impactful way, during this tough time and help revive the industry. And this is our only focus right now – to help the industry and all its stakeholders, to the fullest extent possible.
- Regan Mithani ,Co-Founder & Director,Xpedize Ventures Pvt Ltd
“Neither the start-ups nor the Investors have seen anything like this in the past. The way to combat this situation is to focus on extending your runway for at least 12-18 months. Continue to focus on the opportunity emerging from the changes in requirement and staying close to your clients.”
- Ram Iyer, Founder & CEO , Vayana Network
With social distancing becoming a new normal, the focus of most startups/brands will be moving online right from essential goods, apparels and even automobile. The focus of startup ecosystem will move towards health care infrastructure and technology, logistics, gaming, online education platforms & OTT (video streaming platforms). There would be huge change in consumer behaviour which will provide the startup ecosystem an opportunity to innovate & build products or technologies according to the new demand patterns.
- Saahil Goel, Co-Founder and CEO, Shiprocket
I think every crisis brings with itself threats and opportunities. This one seems to be no different. The threat of going out of business looms large – however, new buying behaviors will be witnessed as permanent shifts in consumption, which can be capitalized into opportunities. Sectors such as Edtech, media, entertainment, hyperlocal deliveries and essential services will see growth coming out of this crisis.
- Nirav Choksi ,Co-founder and CEO, Credable
“The momentum of the start-up ecosystem is not going to change in my view. That being said, the spirit of entrepreneurship in this country is stronger than ever. In light of that, there is a huge opportunity in emerging India and there are enough entrepreneurs out there who want to leverage that.”
- Soham Chokshi, Co-founder and CEO , Shipsy
“If startups are able to sense these changing needs and be agile in providing solutions to customers – they will surely come out of this crisis much stronger. There are numerous opportunities arising in the digitalization, e-learning, e-medicine spaces, online working space – and it is just about grabbing these opportunities and providing the right solution at the right time.”
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