COVID effect: Startups staring at revenue decline, many in process of closing down

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May 19, 2020 10:04 PM

With businesses seeing significant impact due to the COVID-19 pandemic, many startups have frozen hiring, slashed salaries and laid off people.

covid 19 , coronavirus, covid 19 impact, start ups, lockdownStartups are facing client payment delays and manpower crunch, which are impacting business.

About 90 per cent startups said they are facing a decline in revenues, and about 30-40 per cent indicated temporarily halting their operations or in the process of closing down, according to a survey by IT industry body Nasscom.

About 70 per cent startups surveyed said they have a cash runway of fewer than three months, the most affected being the early stage and mid-stage start-ups.

With businesses seeing significant impact due to the COVID-19 pandemic, many startups have frozen hiring, slashed salaries and laid off people.

Nasscom conducted an e-survey, with participation from over 250 startups, during April to study the impact of COVID-19 pandemic on Indian startups, and understand the measures needed to minimise the impact.

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“Yes, the situation is grim – 90 per cent startups facing a decline in revenues…However, it is not all doom and gloom; more than half of the startups are looking to pivot to new business opportunities, diversify into growth verticals like healthcare, and enhancing focus on emerging tech like AI, IoT, cloud,” Nasscom President Debjani Ghosh said.

She added that the situation is “not all doom and gloom” and more than half (54 per cent) of the start-ups are looking to pivot to new business opportunities, diversify into growth verticals like healthcare (40 per cent), and enhancing focus on emerging tech like artificial intelligence, Internet of Things and Cloud (50 per cent).

Ghosh said historically, such downturns have also led to business disruptions and transformations that have opened up a plethora of opportunities to tenacious entrepreneurs.

“However, to ensure that the Indian startup movement and its growth trajectory is not derailed, coordinated support from key stakeholders is the need of the hour. I believe that there is light at the end of the tunnel and we will emerge stronger and wiser from this crisis,” she emphasised.

Some of Nasscom’s key recommendations to the government included access to working capital, easing compliances and fiscal policy and funding support.

With about 9,300 tech-startups, India continues to be the world’s third-largest tech start-up ecosystem. Over 1,300 start-ups were added in 2019.

About 92 per cent of respondents said they are facing a revenue decline after COVID-19 pandemic. About 62 per cent said the topline decline would be over 40 per cent, while 34 per cent said they are looking at a fall of over 80 per cent.

About 40 per cent of start-ups are temporarily halting operations or closing business, and 60 per cent of B2C are facing business closure, the survey said.

There are green shoots as well. About 14 per cent of Edtech, fintech and healthtech startups said they expect growth in revenue.

Startups are facing client payment delays and manpower crunch, which are impacting business. Start-ups going for significant marketing spend reduction, and three out of four low revenue startups are going for pay-cuts, the survey pointed.

Mature startups expect COVID effect to last up to eight months, while mid and low revenue startups foresee the effect lasting beyond that timeframe.

Redcliffe Lifesciences founder Dheeraj Jain said an additional challenge lies ahead in the form of slowdown in consumer demand as severe economic recession is bound to happen.

He said large enterprises are deferring investments, and consumers may defer purchase of non-essential items.

“Pivoting for short-term or re-building for mid-term is the key for those (startups) who have been impacted the most. For some, COVID-19 came as an opportunity to re-assess themselves and see if it’s worth continuing. New business models will emerge from this crisis, new ways of working are already seen and many things won’t go back to pre-COVID times,” he said.

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