The COVID-19 pandemic has severely affected all business sectors including startups. The startup culture of India is facing backlash due to loss of operations and dwindling investments. To understand the scenario with more clarity, FICCI (Federation Of Indian Chamber of Commerce and Industry) and IAN (Indian Angel Network) performed a nationwide survey amongst 250 startups. The results threaten the future of startups to a great extent.
Startups Shutdown Amidst The Pandemic
12% of startups are on the verge of shutting down or already shut down their firm. This is an alarming percentage considering the employees, vendors, investors and other factors that are directly affected. Investment deals of 10% of startups have been calling off due to insecure future and loss of funds. The pre-lockdown investment deals are falling off for many firms. About 33% of startup investment deals are currently on hold, as the investors need time to think due to the pandemic. The report also concludes that various startups have put their expansion plans and business development on hold. Loss of major projects of the year also resulted in substantial financial disturbance for startups pan India.
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“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,” said Padmaja Ruparel, president, Indian Angel Network and co-chair FICCI startup committee.
Future Seems Uncertain For the Startup Sector
22% of startups have enough resources to contain the expenses for the next 3-6 months. But due to lack of operations and activities, the post-pandemic situations are appalling. The startup sector is undergoing an affected season. However, amidst the pandemic, new startup plans are going the downhill. The future is considered unfortunate for growing and upcoming startups.
Even Unicorns Bear Huge Losses
Major unicorns like Swiggy, Zomato, Ola, Uber along with many others have laid off employees and cut salaries for many. The established startups are also facing the backlash of COVID-19 lockdown. Uber shut down its Mumbai office and plans to shut more than 45 offices globally. The survey also highlights, 68% of startups have already announced layoffs and salary cuts. Furthermore, during or post the pandemic more than 30% of startups will layoff their employees.
What are the ways to revive the sector?
Startups yield the potential to innovate and increase the economy at the same time. Hence, serious and quick action is necessary to keep the startups afloat. Tax reliefs, monetary assistance, statutory relief to increase foreign or local investment for startups. The action needs smart scrutiny and faster government approvals and government investment.
The value of startups is expected to fall below 40%. This is unnerving for direct and indirect members of every startup. Many investors are now planning to exercise their down-round protection rights. Owner stakes and other stakeholders are at a risky position at this point. Many startups and stakeholders will lose on a might amount of stakes in their own company adhering to the clause.
New Investment Strategies
Analysts predict that investors will study the ability of a business to adapt to the pandemic changes and twist their business models accordingly. The evolving and changing customer needs should be considered to form new strategies and ideas. 25% of investors have changed their investing strategy according to COVID-19. While 68% of investment firms have a revised version of the existing investor norms.
FICCI Founder Talk About The Situation
Ganesh Raju, Co-Chair, FICCI Start-up Committee and Founder, TurboStart said, “The survey results 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 several 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.”