40 percent of start-ups on the verge of shutting down: Nasscom

The COVID-19 pandemic and the two-month long lockdown in the country has hit startups several, especially those in sectors such as travel and hospitality, retail and others.

According to a latest Nasscom report based on inputs from 250 start-ups, 70 % have a runway (days in hand before it runs out of cash) of less than three months and 30-40% are in the process of shutting down temporarily or permanently.The two month-long survey, which received responses from over 250 startups across sectors, found that 92% reported a decline in revenues. 

Only 8% of startups that participated in Nasscom’s survey said they had enough money to survive for more than nine months and another 22% have enough to barely make it to the end of the year.

The worst hit segments are early and mid-stage businesses, especially in the business to consumer space.

For some startups, there are other factors at play, too. More than 69% of business-to-business startups, especially those operating in retail and fintech categories, say in the report that they are facing delays in payments from their clients.

This has left more than half of such startups to enforce pay cuts, reduce their marketing spends, and a quarter of them to switch to a lower-cost vendor to save money.

Startups operating in transport and travel sectors are also severely impacted, with 78% of respondents saying they were rethinking their business models and tweaking their products in accordance with the current scenario.

While smaller startups are certainly facing the brunt of the lockdown, even unicorns are unlikely to remain unscathed.In the past week, Swiggy and Zomato announced major job cuts, even after raising over $100 million each earlier this year. Sriharsha Majety, co-founder and CEO, Swiggy, told staff that while it raised capital just before covid hit and has sufficient runway, “it is incredibly important to prepare for worse scenarios”.

Over the past two months, more than 250 startups have already shut shop, according to researcher Tracxn Technologies Pvt. Ltd, which calls the list “Deadpool”. This number may rise sharply in the coming months. More than 14,000 startups have shut shop since Tracxn started tracking them in 2016.

The Nasscom report said that the higher the revenue of a start-up, the greater its runway. Around 69 per cent of high-revenue start-ups have more than three months of runway for their businesses. In comparison, 74 per cent of those with low revenues have less than three months’ runway.

In many ways, the problems faced by start-ups are not entirely to be blamed on Covid-19. The bane, as with every bubble, lies in the fact that the business models were baffling (lack of profits and high cash burn), investors held the herd mentality to investing, and start-ups played the valuations game, looking for quick exits, said the report.The situation that start-ups find themselves in is grave, as a lot of them require funding at regular intervals.

The only bright spots for the startup sector were seen in ed-tech with 14% businesses reporting an increase in revenue, while B2B startups seem to be facing lesser revenue drops.

More than half the startups said they are looking to pivot to newer business opportunities, with verticals such as healthcare and technologies such as artificial intelligence (AI) and Internet of Things (IOT) being the top choice.

The sector is now looking to the government for support during the crisis, with 70 percent asking for policies that will ease regulations and open up government procurement for startups. 50 percent startups are also looking for support to reimburse immediate fixed costs. Nasscom also put forth its recommendations on funding support and fiscal relief for startups.

“To ensure that the Indian startup movement and its growth trajectory is not derailed, coordinated support from key stakeholders is the need of the hour. Some of our key recommendations to the government include access to working capital, easing compliance and fiscal policy and funding support,” Nasscom president Debjani Ghosh said in a statement.

Nasscom has asked that a deep-tech investment fund be created for startups, and that fiscal relief be provided by reducing Goods and Services Tax (GST), expediting tax refunds among other measures.

– Authored by Ayush Sharma

  Content Developer, StartupMonk

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