India has the world’s third largest tech start-up ecosystems. 9,300 Indian tech startups provide direct employment to over 4 lakh people. Most startups rely on angel investors to fructify their projects and flourish. But with coronavirus and the India-China faceoff, the larger Chinese investors have stepped behind causing a cash crunch. Besides, several Indian prominent VC funds also warned startups that they may not be able to fund them. This disruption has affected the entire value chain. Indian startups are facing the toughest times with 70% of startups claiming they have less than three months of funds/capital to tide over this period. If the economy does not revive soon and startups don’t receive backing a lot of them may go belly up. Nasscom (National Association of Software and Service Companies) an Indian trade association and the umbrella body for Information Technology (IT) and startups surveyed the impact of COVID on Indian startups revealing the impending threat of survival to India’s 70% startups. Of 9,300 Indian tech startups maybe 6500 will not survive to see 2021.
The Indian government on March 24th announced a complete lockdown to contain the spread of the coronavirus. What 1.4 billion Indians thought was only a matter of days, stretched till the end of June. Since then even after unlock 1.0, 2.0, 3.0, and 4.0, neither has there been a decline in COVID-19 cases, a remedy, nor normal life resuming in the country. In fact, with businesses having to completely shut down overnight India’s economy contracted by an annualized 23.9% in the quarter ending in June 2020 and resulted in a job loss for 140 million Indians. The devastating effect has spread across private consumption, construction, agriculture and even effecting startups.
In April 2020, Nasscom conducted an e-survey. The sample group consisted a mix of 250 startups of which 75 were in the mature stage, 110 in mid-stage, and 65 in early-stage startups. The analysis was based on growth stages, revenues, employee strength, verticals, etc. The results of the survey exposed the sad truth about the inability of startups to conduct business in adversity. It came to light that 90% of startups suffered low revenues, between 30-40% temporarily discontinued business and, 70% of startups had a cash runway fewer than 3 months to sustain their venture. The early stage and mid stage startups were among the worst hit.
The Findings of NASSCOM survey
- 70% of travel related startups face 40% decline in revenue.
- 78% operating in transport and travel sectors are rethinking their business models.
- 50% of fintech and logistics face 40% decline in revenues.
- 14% of edtech and health tech startups showed marginal revenue growth during COVID-19 crisis.
- 40% now want to diversify into growth verticals like healthcare.
- 50% of startups are considering a shift towards Artificial Intelligence (AI), IoT, Cloud.
- 69% of B2B (Business-to-Business startups, operating in retail and fintech categories, are facing delayed payments from their clients.
- 22% have enough capital to last till end 2020 rest might not be able to continue.
- 8% startups have enough money to survive for maximum nine months.
- 88% of mature startups are using more collaboration tools, while low employee size companies (<100) are providing infrastructure for WFH (work from home).
- 2/3rds of the Indian startups need to secure additional capital in the next few weeks to survive.
- 135 out of 250 startups (54%) are looking for new business opportunities.
- 2/3rds of Indian startups accept the impact of coronavirus will linger for up to 12 months.
- 60% of B2C startups are on the verge of closure as revenues plummeted to near-zero levels because of the nationwide lockdown.
The president of NASSCOM Debjani Ghosh said “However, it is not all doom and gloom; more than half of the start-ups are looking to pivot to new business opportunities, diversify into growth verticals like healthcare, and enhancing focus on emerging tech like Artificial Intelligence, Internet of Things (IoT), Cloud. To ensure that the Indian start-up movement and its growth trajectory is not derailed, coordinated support from key stakeholders is the need of the hour. Some of our key recommendations to the government include access to working capital, easing compliances and fiscal policy and funding support”
Steps for startups to survive
NASSCOM urges startups to
- Seek alternative and new opportunities,
- Utilize opportunities offered by ‘Make In India’ to drive and incentivize production of indigenous products,
- Encourage local digitization,
- – Besides support from existing investors explore alternate sources of funding like NBFCs (non-banking financial company) and bank loans, and
- Build partnerships with larger established tech solution providers, customers.
Not all startups will die on account of the coronavirus. They are hoping for eased regulations, better government policies, and tax reliefs to tide them over while simultaneously resorting to a reduction in marketing and ad spend and pay-cuts. The Indian Government has announced an INR 20 lakh crores package under the AtmaNirbhar Bharat initiative to include also startups in various industries and sectors. The Prime Minister of India Shri Narendra Modi once again stressed the need to buy locally made products and ‘Make In India.’ This should give the startups a much needed second life.