A survey was conducted by the Federation of Indian Chambers of Commerce and Industry (FICCI) in collaboration with Indian Angel Network (IAN) to find the ‘Impact of COVID-19 on Indian start-ups’. The survey report stated that nearly 12 per cent of startups out of 250 respondents said that they have shut down their business due to COVID crisis. The 33 per cent of investors said that they have frozen the investment decision. While only 22 per cent stated that they will be able to meet the fixed cost expenses of the upcoming next 3 to 6 months due to the availability of necessary cash reserves with them. 10 per cent of the startups said that their deals have been cancelled while only 8 per cent said that they are receiving funds from an agreement signed prior COVID crisis.
Dilip Chenoy, Secretary-general of FICCI said, “The startup 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 layoffs over the next 3-6 months by startups. The survey indicates that Indian startups need an enabling ecosystem and flow of funds to continue operations”.
The report said, “The reduced funding has led several startups to put a hold on their business development, manufacturing activities and has resulted in the loss of projected orders”.
President of Indian Angel Network and co-chair FICCI startup committee, Padmaja Ruparel commented, “In these uncertain times, as investors, we must play an important role to provide the Indian startups funding, mentoring and handholding 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”.
Majority of investors agreed with the prediction that startup investments will remain low in the upcoming six months while 41 told about their interest in making new deals in segments such as healthcare, tech, AI/deep tech, fintech and agri-tech businesses. The valuations of a startup which are yet to raise funds are expected to slump by 40 per cent. According to management consultancy Duff & Phelps, many investors are likely to use their down-round protection rights that may lead to other investors on the cap-table to decrease their stakeholding in portfolio companies.
Startups have been adhering to salary cuts and employees layoffs in order to keep their business going during the pandemic situation. According to the FICCI-IAN survey, 68% of the start-ups have been significantly decreasing their operational and administrative expenses while another 30% startups were likely to adhere to employees retrenchment if the lockdown was extended too long.