Coronavirus could put brakes on India's start-up story

Coronavirus could put brakes on India's start-up story

Startups to face heat

Representative Image

In a matter of a few weeks, the deadly coronavirus pandemic has claimed more than 5,000 lives globally and infected more than 1.5 lakh people. There are massive shutdowns being put in place all over the world and analysts believe that industries such as travel, tourism and so on will be the worst hit in the crisis.

As far as the start-up ecosystem is concerned, analysts and industry players foresee a slowdown in funding, a push towards profitability by venture capital/ PE funds and a tapering of demand in the short term, especially in the B2C segment.

Follow live updates of coronavirus cases in India here

India’s start-up growth story has been fairly spectacular. India is presently home to 80,000 start-ups, that collectively raised about $10 billion in 2019. It has almost 30 unicorns, third in the world, after China and the United States. This was impressive, especially in a year where GDP growth fell to about 5% and a prolonged slowdown is impacting multiple sectors.

However, the scare brought about by the coronavirus could change that. Murali.T, partner and innovation leader, PWC India says, “ In the short term, the emotional outburst will mean that consumer segments that are not related to goods like sanitisers and soaps may see a drop in demand. Moreover, since most companies are in work from home mode, productivity is bound to be impacted as well.”

In terms of sectoral impact, Murali states that the double whammy of the YES Bank crash and corona impact will be felt in the fintech space in particular. “ This is primarily on account of the drop in trust, a key metric in people adopting fintech tools."

Track live updates on the coronavirus here

Sanjay Swamy, managing partner at VC firm Prime venture partners says that the focus at the moment has been on ensuring the safety of the employees working in the start-ups and ensuring business continuity is not impacted to a large extent. “We have already been in touch with the founders in our portfolio and are asking them to work from home, using the tools available to ensure that the core business is not impacted much. I think this crisis will help us devise better tools to ensure that employees can work from home better. I see it as the silver lining.”

Will it impact the funding patterns and the start-up ecosystem greatly? Sanjay quips, “This crisis will ensure that certain sectors will see a rise in interest, especially in the education tech and remote working space. Moreover, great companies and ideas take shape during a major crisis, prime examples being firms like Facebook and Uber. “

According to Murali, the shutdown and its assorted confusion is a timely wake-up call for the ecosystem. He says that it will push venture capitalists and VC firms to ensure that companies will have to make money quickly and cut down on cash burn. Analysts feel that it may take a year or a couple of quarters for the start-up ecosystem to get back to normal. 

Monish Anand; founder & CEO of fintech firm Shubh Loans agrees with this assessment. He says, ‘’Indian start-ups looking to raise funds are running into rough weather due to coronavirus outbreak. The widespread travel restrictions and government advisories have put a pause on many founder’s plans to raise new funds from Singapore and China and from US-based ventures as well.”

Meanwhile, law firms in the PE/VC space say that they are getting multiple enquiries on the extension of funding rounds and the impact of the shutdown. Roma Priya, founder of law firm Burgeon law says, “The Indian funding economy is seeing the impact of coronavirus and we are getting a lot of queries from promoters to enquire about the potential extension of their funding rounds and impact on closure. Most promoters are looking at extending the runway of their current capital to ensure they get past the prevailing uncertainty in the investment space. There is a lot of potential in the Indian market.”  

Siddharth Pai, founding partner at early venture capital fund 3one4 capital foresees the shutdown as primarily impacting early-stage start-ups and venture capital funds at the moment.  “This is mainly since no meetings are happening because of the quarantine and that will impact the smaller firms in the ecosystem. Moreover, the crash in the stock markets may impact the VC funding space, albeit temporarily.”

DH Newsletter Privacy Policy Get top news in your inbox daily
GET IT
Comments (+)