Start-ups bear the brunt of COVID-19 impact; 12% have shut shop, 70% adversely hit, finds survey

Close to 30% of the companies said that they will lay off employees if the lockdown was extended for a longer period.

July 06, 2020 11:00 am | Updated 11:37 am IST



Around 70% of India’s start-ups have been adversely impacted by COVID-19, and 12% have closed down operations since the outbreak, according to a nation-wide survey.

The survey, which had a sample size of 250, was conducted by the Federation of Indian Chambers of Commerce and Industry (FICCI), jointly with the Indian Angel Network (IAN).

Around 60% of start-ups said they are operating with disruptions.

As per the survey findings, only 22% of the start-ups have cash reserves to meet the fixed cost expenses of their companies over the next three to six months. Additionally, 68% of the start-ups are cutting down their operational and administrative expenses.

Close to 30% of the companies stated that they will lay off employees if the lockdown is extended for a longer period.

As many as 43% of the start-ups have already started salary cuts in the range of 20-40% over the period of April-June 2020.

Meanwhile, 33% said that the investors have put the investment decision on hold, and 10% of the respondents stated that deals have been called off.

Only 8% start-ups received funds as per the deals signed before the pandemic. The reduced funding has led start-ups to put a hold on their business development and manufacturing activities, and has resulted in loss of projected orders.

Industry reactions

“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,” the FICCI and IAN said in a statement.

“Further, immediate fiscal support measures, including grants, soft loans and payroll grants, need to be provided,” the statement added.

Besides 250 start-ups, 61 incubators and investors also participated in the survey.

As many as 96% of the investors stated that the investment in start-ups have been impacted by COVID-19, and 92% of the investors maintained that the start-up investments will continue to be low over the next six months.

Nearly 59% of the investors said they would prefer to work with their existing portfolio companies in the coming months; only 41% stated that they would consider new deals.

A comparison of priority investment sectors pre and during COVID-19 shows that 35% of the investors are now looking at investments in healthcare start-ups, followed by EdTech, AI/Deep Tech, FinTech and Agri. Meanwhile, 44% 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.

Dilip Chenoy, Secretary General, FICCI said, “The start-up sector is stressed for survival at the moment. The investment sentiment is also subdued and is expected to remain so in the coming months.”

“Lack of working capital and cash flows may lead to major lay-offs by start-ups over the next three to six months. The survey indicates that the Indian start-ups need an enabling ecosystem and flow of funds to continue operations,” he said.

Ajai Chowdhry, Chair, FICCI Start-up Committee and Founder, HCL said, “The start-up sector should be viewed as a propellent for the country’s growth and a contributor to India’s vision of being aatmanirbhar.”

“Start-ups have a huge potential to innovate. However, in the current times, the start-up companies are reeling under huge pressure owing to lack of working capital. We need to act now to save a huge number of innovations created in the last few years. And government and industry need to reach out to support them through funding and business opportunities,” he said.

Padmaja Ruparel, President, Indian Angel Network & Co-Chair FICCI Start-up Committee said, “In these uncertain times, as investors, we must play an important role to provide the Indian start-ups funding, mentoring and hand-holding support to stay afloat and come out at the other end of this crisis.”

“To that end, IAN recently announced a Debt Fund to help IAN portfolio companies raise working capital and ensure business continuity, by partnering with Debt providers. This must be replicated on a wider scale, so a larger number of start-ups are provided the capital support to make it during these tough times,” she said.

Ganesh Raju, Co-Chair, FICCI Start-up Committee and Founder, TurboStart said, “The survey results clearly indicate that the start-ups are struggling in this unprecedented time in our history. To navigate the evolving situation, start-ups must focus on cash preservation so sufficient capital is available to ride out the crisis.”

“While some have been able to secure new funding, others might want to consider alternative sources of funding. We have also seen a number of start-ups, re-think their businesses and evolve as per the current situation. Start-ups must use their strengths in innovation to re-strategise and re-think their business,” he said.

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