Covid-Impact: Report reveals obituary and moment of truth for desi startups

Source :Sify
Author :Finance Desk
Last Updated: Wed, Oct 14th, 2020, 17:13:34hrs
Coronavirus Startups Mask

New Delhi: Wish the Indian Startup eco-system a swift recovery. For, the Covid-19 pandemic may have punctured desi startups where it hurts the most - capital.

The report from TiE-Delhi & Zinnov research survey found 15 percent of startups as halting their operations.

This is painful news for a sector that is estimated to create 7.5 lakhs direct jobs, approximatley 28 lakh indirect jobs by the end of 2020.

According to the report:

1. 44 per cent of start-ups have cash runway for less than 6 months

2. 41 per cent are impacted negatively

3. 52 per cent are struggling to raise capital.

4. Decline in investments (April to June 2020) - 48 per cent year on year decline in funding.

5. 37 per cent year on year decline in number of deals in the quarter.

As per the report, less than 50 start-ups raised their first round of funds in Q2 2020. There was a sharp dip in percentage share of total funding for B2C start-ups from 65-70 per cent in Q1 2020 to 30-35 per cent in Q2 2020.

The decline was even more prominent in seed and early stage investments. More than 55 per cent year on year decline in seed and early stage while 38 year on year decline in late stage funding in the quarter.

There was a more than 50% decrease in early and late stage total funding in Q2 20 as compared to Q1 20. Seed stage deals dropped most at 30 per cent in Q2 with investors majorly placing their bets on mature start-ups. Enterprise Tech, BFSI, Healthcare and Edtech combined have raised 60-65% of the Q2 funding in 2020.

The report notes that the Covid-19 impact has varied significantly by sector and several sectors have significant tailwind due to the pandemic; while others have recovered quickly.

"We do have sectors that are still deeply impacted and would recover very slowly Indian ecosystem, led by entrepreneurs, responded quickly and effectively to Covid-19 in response to rapidly evolving market dynamics, customer preferences and operating conditions," the report notes.

However, there's a silver lining.

The report says the Indian start-up ecosystem will grow from strength to strength and eight unicorns are expected for the calendar year 2020.

100 Unicorns and 60,000-62,000 active start-ups are estimated by 2025, the report adds. The key indicators are positive on back of upbeat investor and entrepreneur sentiments.

Equity investments and M&A deals have almost reached pre-Covid levels and 4 unicorns were added during while pandemic was at its peak, bringing total Unicorns to 33.

The great news is startups moving away from cash burn mentality. Around 30 per cent of startups have pivoted to newer markets for alternative revenue streams, while more than 55 per cent of startups are focusing on profitability and reducing cash burn.

In Q3, the Indian startup ecosystem showed positive signs of recovery --funding reverting to 98 per cent of Q1 (pre-Covid) levels, investor sentiments becoming positive, ticket sizes increasing and number of startups raising their first investment round also reverting to Q1 levels, showed the findings.

"Although COVID-19 has been a major setback for the ecosystem, we believe that the changes that the pandemic has brought on will make our ecosystem much stronger, across every dimension. India is on a path to have 100 unicorns by 2025," Rajan Anandan, President, TiE Delhi-NCR, said in a statement.

"Despite the trying times, and the death of many startups, the ecosystem has played a key role in employment generation and is expected to create ~15-16 Lakhs direct jobs by 2025," said Pari Natarajan, CEO, Zinnov.

"There is clear evidence that India's future is about technology, policy, innovation, and entrepreneurship."