Start-ups bear the Brunt of Covid-19 hit Funding Deals: A FICCI AND IAN Survey Reveals

The start-up investments or funding in the recent times have been going through a dreadful stage owing to the world-wide unprecedented pandemic. It is no surprise that start-ups have had the worst upshot of the pandemic in all aspects related to drying of cash, employee layoffs, business sojourn, among others. To top it all, the ongoing Indo-China border tensions leading to a revised FDI policy that aims to curb opportunistic takeovers/acquisitions of Indian companies due to the current Covid-19 pandemic has put any kind of investments in businesses and start-ups to a standstill.

Stating the deep impacts that Covid-19 has brought to the start-up ecosystem, a survey jointly conducted by Federation of Indian Chambers of Commerce and Industry (FICCI) and Indian Angel Network (IAN) has reported of almost 12 per cent start-ups nearing about closing their operations due to lack of funds and bearing of losses owing to the uncertain market conditions.

The Game of Numbers
Another survey on the adverse impact of Covid-19 on Indian start-ups has specified that around 33 per cent of the investors have temporarily stopped investing on any new/existing business concepts while 10 per cent have cancelled deals. Around 22 per cent of the start-ups have acknowledged of having bare minimum cash reserves left to sustain another six months and only 8 per cent of them have been receiving the investments assured to them during the pre-lockdown phase. Well, the numbers are bothersome.

The start-ups that have been apparently denied funds (which is around 35 per cent) have thus decided to terminate their business activities till the time market conditions are back to normal. The primary reason being inability to run their businesses seamlessly. Some of them have decided to re-align their business objectives like shifting towards digital or diversifying their operations for time being while the others have channelized the negatives and opened up new avenues of running their operations. It is believed that almost 23 per cent have seen a collapse in their sales figures and 33 per cent have called off their activities and expansion plans.

A survey jointly conducted by Federation of Indian Chambers of Commerce and Industry (FICCI) and Indian Angel Network (IAN) has reported of almost 12 per cent start-ups nearing about closing their operations due to lack of funds and bearing of losses owing to the uncertain market conditions

This comes after the Government's Atmanirbhar scheme and Cabinet's approval of confirming an amount of Rs 3 lakh crore emergency credit line to the micro, small and medium enterprises (MSMEs) to help them sail through the crisis. The fact that a major number of start-up companies fail to gain advantage from the benefits under the scheme by reason of their existing debt/loans on their books to qualify. Also, most of the start-ups are reliant on VC funds which makes bars them from availing the scheme benefits.

Staying Afloat amid Crisis is the Key
This definitely calls for prompt financial support to start-ups, relief in their tax payments, and constitutional relief to investors to strengthen the investment procedures for start-ups and swift government approvals and higher opportunities for government procurements. In such a crisis situation, many investors have willfully extended their helping hands to start-ups to further help them combat the crisis and help them get going. To this, Indian Angel Network (IAN) has declared a debt fund to help IAN portfolio companies acquire capital and ensure resilience in their operations by associating with debt benefactors.

This is likely to be a momentous support for start-ups amidst the crisis. Sharing his insights with us on the current survey conducted by FICCI and IAN, which states that 33 per cent of the funding for startups have been put on hold and 14 per cent cites have shutdown, Mr. Ratish Pandey, a leading Business Coach, Ethique Advisory, says, "This has brought uncertainty in the investment market causing most investors to temporarily zip up their wallets. This has also impacted the funds available to start-ups. Watershed moments like the current pandemic often result in new innovations and at times tectonic shifts in consumer behavior. So, while liquidity is available with the investors, they are hedging, unsure of the shift in consumer behavior and wondering if any disruptive technology is on the anvil. So, what start-ups need to do in these uncertain times, they have the difficult task of understanding the shift in the consumer & investor behavior, to be relevant, and at the same time, somehow ensure that they are able to conserve and manage their liquidity. The effort that FICCI and IAN have done to support is laudable. The debt-venture fund is a brilliant idea and needs to be pursued. Likewise, I think the Industry leaders need to come together and work with the Government to figure out a way to keep the start-ups afloat and get past these difficult times."

To Be or Not to Be?
Even though the outbreak of pandemic does and its effects on businesses does not show copious signs of retrieval anytime soon but there are probabilities of start-ups across diverse verticals such as ed-tech, online grocery, e-pharmacies steer the sail of their ships towards a positive route. In fact, the unlock 1 & 2 phases of lockdown have already instigated positive growth among the start-ups and needless to say they have been receiving reasonable consideration. In the coming times, it would be interesting to watch whether the start-ups reinstate their sagas if success or continue to antagonize these challenges.