Home/ Companies / Start-ups/  Many startups prioritized growth over profits, Covid-19 could alter that: survey

A new 2020 survey conducted in February reveals that many Indian startups had prioritized growth over profitability, but that could change due to the COVID-19 outbreak that has infected thousands and impacted businesses worldwide.

A majority of the startups in India still prefer to grow fast and users on a rapid scale, rather than growing at a profitable scale, reveals a survey undertaken by venture debt capital provider InnoVen Capital. Around 79% of start-ups surveyed by InnoVen displayed a clear bias for growth over profitability.

All late-stage startups and around 91% growth stage startups surveyed said that they expect to become profitable in the next 4 years. While 82% of consumer brands and 53% of fintech startups claim to be profitable or at least expect profitability in the next 1-2 years.

This notion of growth over profitability prevails even as the report pointed out that startup founders in India expect a weaker venture funding environment in 2020. Around 75% of founders surveyed by InnoVen said that had they had a favorable funding experience in 2019, but almost 58% of founders expect fund-raising to be more challenging in 2020.

InnoVen’s survey also revealed that fundraising and enhancing top management will be the top priorities in 2020 for most founders. Other priorities include improving product-market fit and focus on profitability, the survey showed.

Only 14% of the founder surveyed by the venture debt firm said profitability is a top priority for 2020, compared to around 27% who said fundraising was the top priority.

While a majority of the founders (57%) surveyed believe that the most likely exit scenario will be through mergers and acquisitions and secondary exits, many founders are now starting to look at IPO’s as a viable exit option. Around 42% of the founders said that an IPO is could be one of their exit options in 2020, which is a slight increase from 38% in 2019.

Around 54% of growth and late-stage start-ups expect an exit within 5 years, with 62% indicating IPO as a likely exit. More than 50% of Fintech start-ups surveyed said that IPO is the most likely mode of exit. 60% of e-commerce start-ups believe that secondary exits are the most likely, while 64% of the consumer brand start-ups feel that a merger or an acquisition could be the most likely mode of exit.

However, startups and large businesses have seen a concentrated impact on their businesses with the outbreak of the COVID-19 epidemic, especially in the travel segment as many countries have sanctioned travel bans and visa curbs for foreigners. Venture capital firms have urged startups to conserve cash, and possibly brace for a funding slowdown.

Sequoia Capital, one of the most active VC firms, said that a business slowdown is imminent especially supply chain disruptions. The firm has also advised founders and entrepreneurs to question their cash runway, fund-raising, sales forecasts, headcount and capital spending in an uncertain environment.

Ashish Sharma, CEO, InnoVen Capital India said in a statement that the survey was carried out in February when Coronavirus impact was largely concentrated in China and that “it’s logical to conclude that the sentiment has turned more unfavorable over the last week".

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Updated: 17 Mar 2020, 07:40 PM IST
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