Startups need urgent relief to stave off Covid-19 impact: FICCI-IAN

Startups need urgent relief to stave off Covid-19 impact: FICCI-IAN
Photo Credit: VCCircle
6 Jul, 2020

The startup ecosystem in India is fighting for its survival as the Covid-19 pandemic has crippled operations, according to a new study by industry body Federation of Indian Chambers of Commerce and Industry (FICCI) and early-stage investor Indian Angel Network (IAN).

The report, titled ‘Impact of COVID-19 on Indian Startups’, found that 12% of startups have shut shop while 60% are operating with disruptions. About 250 startups, as well as 61 incubators and investors across the country, participated in the study. 

Some 22% of startups in India have cash reserves needed to survive over the next 3-6 months while 68% have trimmed operational and administrative costs, the study showed. 

The cash crunch is coupled with lack of fresh funding as many investment decisions by prospective investors have either been put on hold or cancelled. One-third of startups have seen delays in funding talks and 10% deals have been called off. 

Only 8% of startups received the funds as per the deals signed pre-Covid 19, the report revealed. 

“The startup sector should be viewed as a propellant for the country’s growth and a contributor to India’s vision of being Atmanirbhar. However, they are reeling under huge pressure owing to a lack of working capital. The government and industry need to reach out to support them through funding and business opportunities,” Ajai Chowdhry, chairperson of FICCI startup committee said in a statement. 

 FICCI-IAN Survey on Impact of COVID19 on Startups

Almost all of the incubators in the study expect investor sentiment to remain weak over the next six months. Of the investors, 59% said they would prefer to work with their existing portfolio companies in the coming months with soft support such as virtual interactions with mentors and investors.

Sectors such as health-tech, fintech, ed-tech, agri-tech and artificial intelligence (AI) were among the preferred by investors during the pandemic.

FICCI-IAN survey on impact of COVID19 on startups

Close to 30% of startups said that they will lay off employees if the lockdown is extended for too long while 43% have already started salary cuts. Companies that have let go of staff include fintech platform Lendingkart; shared mobility players Ola and Uber; hospitality services startups OYO, Airbnb, Ixigo and RateGain; fintech startups Kabbage, Acko and BharatPe; online food delivery platforms Zomato and Swiggy; bike rental platforms Bounce and Vogo; business-to-business ecommerce platform Udaan; lifestyle and fitness startup Cure.fit; and social commerce startup Meesho.  

“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,” Padmaja Ruparel, president of IAN said.

Listen: IAN Fund’s Padmaja Ruparel on virtual dealmaking and backing the right founders during the Covid-19 crisis

Last month, IAN along with Indifi Technologies launched a growth stage debt fund to help its portfolio companies get working capital in the range of Rs 10 lakh- Rs 2 crore.