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COVID-19 impact on Start-ups - 12% down shutters; 70% adversely hurt

By TIOL News Service

NEW DELHI, JULY 06, 2020: THE Covid-19 pandemic has had an unprecedented impact on the Indian businesses and more so for the SMEs and Start-ups. With uncertainty in the business environment and an unexpected shift in the priorities of the government as well as the corporates, many start-ups are struggling to keep the operations going.

As per a nationwide survey on the ‘Impact of COVID-19 on Indian Start-ups’ conducted by Federation of Indian Chambers of Commerce and Industry (FICCI), jointly with the Indian Angel Network (IAN) with 250 start-ups, 70% of start-ups stated that their businesses have impacted by Covid-19. 12% of the start-ups have shut operations and 60% are operating with disruptions.

The survey depicts that only 22% of the start-ups have cash reserves to meet the fixed cost expenses of their companies over the next 3-6 months. The findings show that 68% of the start-ups are majorly cutting down their operational and administrative expenses. Close to 30% of the companies stated that they will lay off employees if the lockdown was extended too long. 43% of the start-ups have already started salary cuts in the range of 20-40% over the period of April-June 2020.

On the investment front, 33% start-ups said that the investors have put the investment decision on hold and 10% stated that the deals have been called off. Only 8% start-ups received the funds as per the deals signed pre-COVID. The reduced funding has led start-ups to put a hold on their business development, manufacturing activities and has resulted in loss of projected orders. The survey highlights the need of an urgent relief package for start-ups including possible purchase orders from the government, tax relief and swifter tax refunds. Further immediate fiscal support measures including grants, soft loans and payroll grants need to be provided.

Besides 250 start-ups, 61 incubators and investors also participated in the survey.

96% of the investors stated that the investment in start-ups have been impacted by COVID-19. 92% of the investors maintained that the start-up investments will continue to be low over the next six months. 59% of the investors said they would prefer to work with their existing portfolio companies in the coming months and only 41% stated that they would consider new deals. A comparison of priority investment sectors pre and during COVID-19 shows that 35% of the investors are now looking at investments in healthcare start-ups followed by EdTech, AI/Deep Tech, FinTech and Agri.

44% of the incubators surveyed highlighted that their day-to-day operations have been considerably impacted by the COVID-19. Most of the incubators are now supporting their portfolio companies by providing them virtual platforms to interact with mentors, investors, and industries.

Mr Dilip Chenoy, Secretary General, FICCI said, “The start-up sector is stressed for survival at the moment. The investment sentiment is also subdued and is expected to remain so in the coming months. Lack of working capital and cash flows may lead to major layoffs over the next 3-6 months by start-ups. The survey indicates that the Indian start-ups need an enabling ecosystem and flow of funds to continue operations.”

Mr Ajai Chowdhry, Chair, FICCI Start-up Committee and Founder, HCL said, “The start-up sector should be viewed as a propellent for the country’s growth and a contributor to India’s vision of being Atmanirbhar. Start-ups have a huge potential to innovate. However, in the current times, the start-up companies are reeling under huge pressure owing to lack of working capital. We need to act now to save a huge number of innovations created in the last few years. And government and industry need to reach out to support them through funding and business opportunities.”

Ms Padmaja Ruparel, President, Indian Angel Network & Co-Chair FICCI Start-up Committee said, “In these uncertain times, as investors, we must play an important role to provide the Indian startups funding, mentoring and handholding support to stay afloat and come out at the other end of this crisis. To that end, IAN recently announced a Debt Fund to help IAN portfolio companies raise working capital and ensure business continuity, by partnering with Debt providers. This must be replicated on a wider scale, so a larger number of start-ups are provided the capital support to make it during these tough times.”

Mr Ganesh Raju, Co-Chair, FICCI Start-up Committee and Founder, TurboStart said, “The survey results clearly indicate that the startups are struggling in this unprecedented time in our history. To navigate the evolving situation, startups must focus on cash preservation so sufficient capital is available to ride out the crisis. While some have been able to secure new funding, others might want to consider alternative sources of funding. We have also seen a number of startups, re-think their businesses and evolve as per the current situation. Startups must use their strengths in innovation to re-strategize and re-think their business.”


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