On The Path To Recovery

The year 2020 is nothing short of a nightmare for India’s entire startup ecosystem, which was on an upward spiral making the nation proud. However, COVID-19 induced lockdown brought everything to a screeching halt, barring fintech, telemedicine and a few others, enabling digital offerings. In fact, four Indian startups gained the unicorn status during the slump. With restrictions getting curbed, the sector is crawling back on track and is witnessing growth.

A Parliamentary panel in its report -‘Financing the Startup Ecosystem’ - notes that Indian startups must tread the path of self-reliant India and must cease their dependence on foreign investment for growth. It has recommended abolishing of tax on long-term capital gains for collective investment in startups through angel funds, alternate investment funds and limited liability partnerships. Amongst a raft of recommendations made by the panel, some important suggestions include expanding funding sources, incentives for long-term capital gains, and guidelines for rationalising prices. The idea is to encourage domestic capital to revive the economy. The committee has made recommendations on expanding the role of Small Industries Development Bank of India’s (SIDBI) Fund-of-Funds to help disburse more funds to this new economy.

While these may take some time to transpire into reality, the world’s third-largest startup ecosystem post-COVID is recovering faster than expected. According to a report, ‘COVID-19 and Antifragility of India - Indian Startup Ecosystem by The Indus Entrepreneurs (TiE) Delhi-NCR and Zinnov, between March and June, 40 per cent of startups were adversely impacted while 15 per cent were forced to discontinue their operations due to the pandemic. The report mentions, Indian startups grabbed the third position globally in 2019. The country boasted of a total 26 unicorns till January 1, 2020, and Indian startups received $14.5 billion funding, the report reveals.

Lockdown, social distancing norms, coupled with risks from COVID, left the startup ecosystem cash-starved. Overall funding during the period dipped 50 per cent from pre-COVID levels, the report reveals. However, the industry saw a gradual recovery from the month of September, and the good news is that most segments appear to have recovered to pre-Covid levels.

Throwing light on the recovery of the startup ecosystem, Saurabh Goel, Co-Founder of Pune-based startup Amberstudent, says “We at AmberStudent saw almost 50 per cent drop in revenues from March to May. It was the effect of panic and students’ uncertainty about their future. Businesses started returning to normalcy from June, although the pace was slow. We saw a twofold surge in bookings between August and September compared to last year. It is continuing in October. We have seen delays of a month or two, which caused a shift in our month-on-month projections. We have also grown our employee numbers by 80 per cent post lockdown.”

Goel adds that without any doubt, this pandemic has hurled innumerable challenges before the startup ecosystem. He, however, feels there is a whole new array of opportunities evolving. Online products and services have seen a steady surge in consumer demand, owing to social distancing norms. Startups suddenly received the traction that was missing before. People are getting accustomed to services delivered to their doorsteps. The pandemic has essentially acted as a tipping point for radically shifting consumer behaviour to app-based products and services.

The TiE-Zinnov report further states that 75 per cent of startups are gradually recovering post lockdown. Nearly 30 per cent of startups have pivoted to newer markets for alternative revenue streams, while over 55 per cent of startups are focusing on profitability and reducing cash burn. Further, deal activities in terms of total investments and the number of unique funded startups have recovered to pre-COVID levels during the quarter ended September 2020. Four Indian startups have gained the unicorn status amid the pandemic, which brings cheer to the new economy as other sectors are struggling to survive.

The report also states that the startup ecosystem may generate 750,000 new direct jobs and 2.8 million indirect jobs by the end of 2020.

Sainadh Duvurru, Co-Founder of a relocation startup HappyLocate, based out of Bangalore, says, “When the lockdown was imposed, we thought it would be for 45 days and then we would quickly bounce back to normalcy. But all of us were wrong. I will say things are getting normal, and that is reflected in the numbers.”

During the lockdown, we had a lesser number of people working for us. But after the lockdown was lifted, the number grew substantially. Our profits have grown post lockdown but they are not in line with anticipated profits during the pre-COVID period. COVID has been a speed breaker and has forced us to compromise with our profit goals,” he adds.

Funding too is back on track.  According to reports, the startup ecosystem grappling with liquidity concerns, is gradually limping back to normalcy. Many startups are getting more funding, compared to last year. India is expected to be home to about 62,000 startups, including 100 unicorns, by 2025. Four startups, Nykaa, Unacademy, Postman, and Razorpay, emerged as unicorns when the pandemic was at its peak. The country is on track to boast of at least eight unicorns by the end of 2020, at par with 2019 figures, taking the overall unicorn number to 33, the report points out.

rajat@outlookindia.com

With inputs from Jyotika Sood