70% startups may not survive after 3 months as young tech firms become major casualties of Covid

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Updated: May 19, 2020 2:57 PM

With around 9,300 technology startups, India is home to the third-largest technology startup ecosystem globally employing around 4 lakh people. However, due to Covid outbreak, startups are undertaking massive cost-cutting measures to survive the downturn.

Around 65 per cent of startups see a significant impact on funding due to the virus outbreak.

While MSMEs may benefit from the relief package announced by the Finance Minister Nirmala Sitharaman last week to cope up with Covid impact, for startups it seems to be a long road to recovery. The startup space is turning out to be one of the major causalities of the pandemic as around 40 per cent of businesses are about to shut down or have already halted their operations temporarily while a whopping 70 per cent have their survival at stake with less than three months of runway left. Moreover, revenues are squeezed for 90 per cent of over 250 startups surveyed by Nasscom in April this year.

“Startups need to go back to strengthen their minimum viable product (MVP) as those with strong MVP will survive Covid and won’t rely on only funding which is unnatural. Such crisis tests these business models. Moreover, revival in investment mindset is another three months away. Covid is changing the expectation of returns for investors. The pressure is on investors to pick bets carefully where return multiple may be very high as their limited partners will chase them for how well they are investing their money,” Debabrat Mishra, independent startup advisor and former partner at Deloitte India told Financial Express Online.

With around 9,300 technology startups, India is home to the third-largest technology startup ecosystem globally employing around 4 lakh people. However, with Covid outbreak hurting demand and supply across markets and industries, startups across sizes including Zomato, Swiggy, Ola, Paytm, OYO and more have undertaken cost-cutting measures to reorient their strategies for Covid survival and climbing back to pre-Covid levels.

The survey titled Reviving the Indian Startup Engine During Covid-19 suggested 54 per cent of startups looking to pivot the business to new opportunities while 40 per cent want to diversify into areas such as healthcare to survive the downturn. Telemedicine has been one of the areas in healthcare that have gained ground amid lockdown as in-person doctor consultation at clinics and hospitals were suspended. Startups are also looking to enhance the adoption of deep technology including artificial intelligence, cloud computing and internet of things to streamline operations and boost efficiency.

Also read: Ola, Uber resume services in more cities; your cab arrives in select regions in red zone

Scarcity of funding is another major impact area for startups as around 65 per cent of respondents claimed significant impact on funding due to the virus outbreak. As a result, 86 per cent of startups are looking for government support or loans from banks and NBFCs to extend their runway to survive.

Nasscom also urged the government to create a Deep Tech Investment Fund for technology startups similar to the existing Fund of Funds along with accelerating its disbursement, particularly for early-stage startups. Among the fiscal relief measures recommended, by the IT-BPM industry association – Nasscom, were expediting tax refunds, reducing GST, deferring gratuity and provident fund payments, waiving off restrictions for claiming an expense as a deduction under tax laws along with fines and penalties for offences related to procedural matters, delaying property tax payment, relaxing loan interest payment etc.

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