Bengaluru may lose 50,000 startup jobs in COVID-19 turbulence

India's startup capital Bengaluru is set to witness large-scale distress in its startup ecosystem due to the COVID-19 pandemic. 

An estimated 50% of the startups in the city, which is home to 8,000 startups, may wind-up operations due to severe cash crunch, leading to a loss of around 50,000 jobs.

Already, some of the big players such as Swiggy, Zomato and Ola have announced lay offs, pay cuts and furloughs to reduce their losses.

According to analysts, the main challenge for startups right now is to extend their runway, which translates to preserving cash until normalcy returns and demand picks up.

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K Ganesh, serial entrepreneur and partner, GrowthStory said: “Most startups are not profitable and depend on investor capital to survive every month. In this situation, when the business has come to zero, the amount of cash they need has increased exponentially. I estimate 50% of startups will shut down in Bengaluru.” 

Ganesh, who is a promoter of BigBasket, Portea Medical & others, said the focus for startups right now is to survive by cutting costs, so that they are able to open up once things get normal. 

Suresh Jayaraju, former Senior Director of Nasscom 10,000 startups and CEO of Innovopod, said that pre-launch and early-stage startups constitute 70-80% of all startups. He said at least 40% of such startups will shut within a year in Bengaluru.

Mohandas Pai, former Infosys director and venture capitalist, reckoned that around 2,000 startups may shut down in the city in the next three months.

“There will be a big shake-off. Investors will invest in companies that are doing well. Startups in Bengaluru employ about 3-4 lakh people. About 50,000 people will lose their jobs because of COVID-19,” said Pai.

Rohit Goyal, Managing Partner, Windrose capital said that early-stage startups are in for a shock as they started in a rosy world. The ones who are planning to enter now will be relatively more prepared.

V Ganapathy, CEO, Axilor Ventures, estimated that 25% of funded startups will close shop in the city. “For the majority, demand has temporarily stopped but will eventually pick up. It's about surviving till demand returns,” he said.

Investor funding has not completely dried up but most investors are adopting the ‘wait and watch’ approach. 

“Investors are focusing on the companies in their portfolio and on companies that have been positively impacted like in the e-commerce, healthcare, Ed-tech sectors, to enable them to meet the demand,” said Ganapathy.