A pandemic, slowing economy and geo-political tensions with China have disrupted the startup sector in India – currently third largest such ecosystem in the world. However, with the reopening of global markets, demand recovery and government intervention, the startups have begun to leave their worst fears behind and re-strategise to meet the consumption patterns in a new post-pandemic world.
It really has become a matter of survival of the fittest for this burgeoning community especially with imminent cash flow challenges and long-term sustainability. Despite the Reserve Bank of India recently putting startups under priority lending sector and the Department for Promotion of Industry and Internal Trade announcing abolition of taxes on various kinds of investments, analysts feel that enterprises need financial stimulus to emerge out of the current crisis.
As per a recent Nasscom study, Covid has put the survival of startups in India at stake. It said that 90 per cent of startups faced a decline in revenues and nearly 40 per cent having already/are in the process of temporarily shutting operations. 70 per cent of the startups had revenues which could last them for only for three months, whereas just 8 per cent were believed to be able to run operations for nine months and beyond.
Funds paucity
Traditionally, startups in India have relied on private equity/ venture capital funds and angel investors for their cash flow requirements and expansion. The financial institutions, including banks, non-banking financial corporations (NBFCs) and other lenders, are still not a main source of capital for startups on account of risk factors, credit guarantees etc. With the Indian government enforcing stricter guidelines on Foreign Direct Investment from neighbouring countries particularly China, the fund flow problems seem to have worsened.
China has accounted for more than $5 billion investment in Indian startups till date with stakes in leading tech firms like Paytm, Zomato, Flipkart, Big Basket, Udaan etc. Chinese leading investors, including Tencent, Ant Financial, Shuwei etc, have put their money in the country. Ant Finaciali’s reported investment plans in Zomato are now on hold as the company said during its IPO listing that it is re-evaluating its funding in Indian startups on account of regulatory hurdles.
Roma Priya, founder of Burgeon Law, feels that this could also turn out to be an opportune moment for Indian VCs to rise to the occasion and step forward to help the country’s start-ups. “However, despite the ban being a decision embraced by many, there are several challenges that come along with it,” she added.
Covid-led boom in edtech, e-commerce startups
Barring hospitality, retail, travel, tourism , sectors like online education, fintech and healthtech sectors saw a considerable fund inflow from homegrown/ overseas firms as Covid underlined the significance of digitisation and the internet adoption saw a massive surge. Edtech firms, including Byjus, Unacademy, Vedantu and others, have seen their valuations rise as money trickled in from leading investors, including Softbank, Tiger Global, Facebook etc. Overall, online education startups raised over $1.5 billion since the onset of pandemic. Investors have remained bullish on sectors like ecommerce, digital payments, telemedicine and other Saas platforms despite the pandemic.
“The need for adoption of digitisation is what will drive the next wave of growth for Indian startups. So, the ones that are capable of evolving their product/ services in a new digital world in line with consumer demands would be able to weather the demand. Big-ticket investments from overseas funds are already pouring in. A push is needed from the government’s end for bootstrapped and early stage startups ” a promoter in a Bengaluru-based VC firm said.