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Photo: iStockphoto
Photo: iStockphoto

Funding for 33% Indian startups put on hold, 12% cite shutdown: Survey

The finding was part of a survey jointly conducted by FICCI and Indian Angel Network

The ongoing covid-19 crisis has deeply impacted the Indian startup ecosystem with close to 12% startups stating shutdowns, according to a survey jointly conducted by Federation of Indian Chambers of Commerce and Industry (FICCI) and Indian Angel Network (IAN).

The nationwide survey on the ‘Impact of covid-19 on Indian start-ups’, conducted across 250 startups, said 33% of them said that investors have put investment decision on hold, with only 22% startups stating that they have the necessary cash reserves left to meet the fixed cost expenses over the next 3-6 months.

Another 10% stated that deals have been called off, with only 8% of startups receiving the funds as per the agreements signed during pre-covid times.

With increasing uncertainty and lack of funding, the pandemic has had an unprecedented impact on startups, leaving many of them struggling to keep the operations going.

“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 the Indian startups need an enabling ecosystem and flow of funds to continue operations," said Dilip Chenoy, secretary general of FICCI.

The reduced funding has led several startups to put a hold on their business development, manufacturing activities and has resulted in loss of projected orders, the report said.

The sector through this survey highlights the need of an urgent relief package from the government for startups including - tax relief and swifter tax refunds, and immediate fiscal support measures including grants, soft loans and payroll grants - to soften the blow of the impact.

“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," said Padmaja Ruparel, president, Indian Angel Network and co-chair FICCI startup committee.

Most of the investors surveyed as a part of the survey agreed that startup investments will continue to be low over the next six months, with only 41% stating that they will consider new deals in areas of healthcare start-ups followed by edtech, AI/deep tech, fintech and agri-tech businesses.

Another threat looming on the startups is ‘down-rounds’, with valuations of several startups expected to drop as much as 40%, which are currently in the market to raise new funds. According to management consultancy Duff & Phelps, several investors are expected to exercise their down-round protection rights which may affect other investors on the cap-table to reduce their stakes in portfolio companies.

Over the llast three months, several startups including unicorns Zomato, Swiggy, Udaan, Ola, and other startups, Lendingkart, Paisabazaar, Sharechat and Uber India have announced salary cuts as well as laid off employees in a bid to increase their capital runway.

The FICCI-IAN survey now highlights that 68% of the start-ups are majorly cutting down their operational and administrative expenses, and another 30% of startups are expected to lay off employees if the lockdown was extended too long.

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