The negative impact of COVID-19 is so real that around 12 percent of startups impacted by it says their businesses have shut operations. A major reason for this is lack of fund in-flow, as 33 percent startups said that the investors have put the investment decision on hold while 10 percent mentioned that the deal have been called out. This is what a survey by FICCI-IAN brings to light.

The dark clouds are looming on SMEs as well as uncertainties in the business environment and an unexpected shift in the priorities of the government and corporates have made many startups struggle for their existence. FICCI-IAN nation-wide survey on the ‘Impact of COVID-19 on Indian Startups’ that surveyed 250 startups, 61 incubators and investors, also reveals that around 70 percent of the startups are badly impacted by the virus, while 22 percent of the surveyed startups have cash reserves to meet the fixed cost expenses over the next three-six months.

The report also reveals that 68 percent of the startups are majorly cutting down their operational and administrative expenses, while close to 30 percent of the companies are planning to lay off employees if the lockdown extends for long. On the other hand, 43 percent of the startups have already started salary cuts in the range of 20-40 percent over the period of April-June 2020.

While on the investment front, only eight percent of the startups received funds as per the deals signed pre-COVID-19. This reduced funding has led startups to put a hold on their business development, manufacturing activities and has resulted in loss of projected orders. Seconding what many industry experts have said earlier, this report too emphasizes on an urgent relief package for startups including possible purchase orders from the government, tax relief and swifter tax refunds. The survey also mentions about an immediate fiscal support measurers including grants, soft loans, and payroll grants for the SMEs and startups.

Dilip Chenoy, Secretary General, FICCI, says, “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 thee-six months by startups. The survey indicates that the Indian startups need an enabling ecosystem and flow of funds to continue operations.”

We need to act now to save a huge number of innovations created in the last few years

96 percent of the investors stated that the investment in startups have been impacted by COVID-19, while 92 percent of the investors maintained that the startup investments will continue to be low over the next six months. 59 percent of the investors said they would prefer to work with their existing portfolio companies in the coming months and only 41 percent mentioned they would consider new deals.

Ajai Chowdhry, Chair, FICCI Start-up Committee & Founder, HCL, says, “The startup sector should be viewed as a propellent for the country’s growth and a contributor to India’s vision of being Atmanirbhar. Startups have a huge potential to innovate. However, in the current times, the startup 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.”

A comparison of priority investment sectors pre and during COVID-19 shows that 35 percent of the investors are now looking at investments in healthcare start-ups followed by EdTech, AI/Deep Tech, FinTech and Agri. On the other hand, 44 percent 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.

Padmaja Ruparel, President, Indian Angel Network & Co-Chair FICCI Start-up Committee, asserts, “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.”

Ganesh Raju, Co-Chair, FICCI Start-up Committee & Founder, TurboStart, says, “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.”