Impact of Covid-19 on the Indian start-up ecosystem

A recent survey conducted by FICCI and the Indian Angel Network shows that the Indian start-up sector urgently needs a flow of funds and an enabling ecosystem to continue operations.

The Covid-19 pandemic has had an unprecedented impact on 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.

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Coping with Covid-19

Federation of Indian Chambers of Commerce and Industry (FICCI), jointly with the Indian Angel Network (IAN) recently carried out a nationwide survey on the 'Impact of Covid-19 on Indian start-ups.' According to the survey conducted amongst 250 Start-ups, 70 per cent of start-ups stated that their businesses have been impacted by Covid-19. 12 per cent of the start-ups have shut operations and 60 per cent are operating with disruptions.

The survey shows that only 22 per cent 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 per cent of the start-ups are majorly cutting down their operational and administrative expenses. Close to 30 per cent of the companies stated that they will lay off employees if the lockdown was extended too long. 43 per cent of the start-ups have already started salary cuts in the range of 20-40 per cent over the period of April-June 2020.

Investment woes

On the investment front, 33 per cent start-ups said that the investors have put the investment decision on hold and 10 per cent stated that the deals have been called off. Only 8 per cent 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 the loss of projected orders. The survey highlights the need for 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 per cent of the investors stated that the investment in start-ups have been impacted by Covid-19. 92 per cent of the investors maintained that the start-up investments will continue to be low over the next six months. 59 per cent of the investors said they would prefer to work with their existing portfolio companies in the coming months and only 41per cent stated that they would consider new deals. A comparison of priority investment sectors pre and during Covid-19 shows that 35per cent of the investors are now looking at investments in healthcare start-ups followed by EdTech, AI/Deep Tech, FinTech and Agri.

44 per cent 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.

The start-up sector is currently stressed for survival. The investment sentiments are subdued and are 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.

*Disclaimer: The views expressed herein constitute the sole prerogative of the author. They neither imply nor suggest the orientation, views, current thinking or position of FICCI. FICCI is not responsible for the accuracy of any of the information supplied by the author.