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90 Percent Indian Startups Facing Capital Crunch

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Startups in India are witnessing a massive downturn following the Coronavirus pandemic. Nearly 90 percent of startups are facing a capital crunch, and 70 percent of them barely have enough capital to last them through three months, according to a survey undertaken by the National Association of Software and Service Companies (NASSCOM), a trade body of the IT industry.

The National Association of Software and Service Companies undertook a month-long e-survey of about 250 startups to ascertain the impact of the COVID-19 pandemic on their business.

The survey found that around 40 percent of startups have either temporarily shut down operations or are on the verge of shutting down; 75 percent, which are customer-focused businesses, have less than three months to zero runway cash. Only 8 percent of those surveyed said they had cash to seem them through the year.

“Out of the blue, this flourishing growth has suddenly been hit by a roadblock… the COVID roadblock. There is no country, business or living being that has not been affected by the COVID pandemic. While governments have been working diligently to protect and save human lives, businesses have been hit, and small businesses and startups have been the most affected,” said Debjani Ghosh, President of Nasscom, in the report.

This is the scenario when investors believe that businesses need to have at least 24-36 months’ liquidity in hand to escape the effects of the Covid-19 impact. It will take nearly two years to recover from the losses inflicted by this pandemic. In an open letter, investors have advised startups not to expect any fresh infusion of money and be prepared to make hard decisions.

India, which is the second-largest ecosystem for startups, has seen major hospitality, delivery aggregates, and healthcare space companies announcing job cuts. Some of the major startups, such as Oyo, Swiggy, Zomato, and Curefit have already laid off hundreds of employees to trim overheads and cut costs.

Across the board, cost-cutting measures have been implemented. From pay cuts to no incentives, to shopping for lower-priced vendors and cutting all marketing and advertisement costs, the startups are busy floating a lighter and leaner ship.

Startups that are in the business to business space are reporting stalling of business activity as their bill reimbursements are getting delayed, which is having a domino affect. Nearly 69 percent of startups in the fintech and retail sector are facing delay in payments.

The pandemic is forcing the startups to take a fresh look at their business and even try some dramatic changes or adopt innovations. About 54 percent of the 250 respondents said they were looking to pivot to new business opportunities, and 40 percent said they were planning to diversify into new growth opportunities like healthcare.

Along with the hospitality and delivery sector, it is the transport and travel industry that is facing a severe crunch. With most countries enforcing a lockdown and domestic and international travel at a standstill, startups in this space are critically hit. Nearly 78 percent of respondents said that they were rethinking their business models and tweaking their products following the current scenario.

Most companies are adopting distancing and hygienic norms to stem the onslaught and stave off complete shutdowns. Work form home is another option that is coming in handy. Oyo, the budget hotel aggregator, recently unveiled new steps that it has taken at its hotels to ensure safety for operators and customers.

With consequent lockdowns easing travel and work norms, more than two-thirds of startups also said they were looking for policies that eased regulations and compliances, and offered fiscal policies and government support. They were also looking at taxation reliefs for a few years. They want the government to push the Made in India concept and support startup products and services. They want an ecosystem where the various governments, organizations, and trade bodies collaborate for ease of business.

Earlier this month, India announced a $266 billion stimulus package to help revive the stalled economy. The finance minister has promised that startups will be able to access this relief money, but the details are still sketchy.

The last five years have seen India achieve healthy growth in startups. They have shown a consistent growth of 12 to 14 percent. In 2019, startups raised a record $14.5 billion from investors.

 

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