The survey notes that immediate government intervention is essential for survival of startups, with 70% of startups looking for policies that support easing of regulations.

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Atom Startups Tuesday, May 19, 2020 - 17:11

The Indian tech startup ecosystem is the third largest in the world with over 9,300 tech startups, providing direct employment to over 4 lakh people. However, the COVID-19 pandemic has come as a jolt and put the brakes on the flourishing growth story. A month-long survey undertaken by Nasscom (National Association of Software and Service Companies) to gauge the impact of COVID on startups has revealed that 90% of startups are facing a decline in revenues, nearly 30-40% are temporarily halting their operations or in the process of closing down, and 70% of startups have a cash runway of less than 3 months, with early stage and mid stage startups the worst affected. 

The disruption is being felt across the value chain with growth and business development the most impacted for 36% startups. Most of the startups see new project pipeline and scaling as a struggle in the future. 28% of startups are hit by funding shortage which can affect long term sustainability, 21% startups are facing business operations issues like raw material shortage, client payments, lack of customer connect due to travel restriction, and 15% of startups are facing issues with technology upgradation /product development. 

69% of B2B startups cite client payment delays as a major issue with retail and fintech startups most impacted, while B2C startups in the delivery business are facing huge manpower crunch. In terms of steps taken to address the impact, 70% of B2B startups are opting for substantial marketing spend reduction and 3 out of 4 low revenue startups are going for pay-cuts. 

The business growth trajectory has come to a standstill, the Nasscom survey finds, with 90% of startups in transport & travel sector facing challenges in scaling business and expansion plans. A majority of mature startups are curtailing expansion plans while high revenue startups have frozen hiring. 

Nasscom is the umbrella body for startups and the IT sector in India. 

The survey also finds that 80% of startups are rethinking business models and tweaking their products to suit the current scenario. Most of the edtech, fintech and healthtech startups are tweaking their products while mature and early stage startups are looking for collaborations.

The biggest tech challenge for 51% of B2B startups is usage of remote working technologies while nearly 70% of early stage and low revenue startups are facing product development challenges. 

As part of key steps taken to address impact, 88% of mature startups are using more collaboration tools, while low employee size companies (<100) are providing infrastructure for WFH (work from home). Usage of data security tools and solutions increases as the lockdown has prevented movement to offices, the survey notes. 

Terming the funding scenario as precarious, the survey says that urgent government intervention is needed. Over 80% of agritech and fintech startups and majority of early stage startups face significant funding crunch while healthtech startups continue to witness positive funding scenario. 

80% of early stage startups are seeking government and NBFC (non-banking financial company) funding, with healthtech and travel & tech key sectors. Meanwhile, early stage and high revenue startups are seeking support from existing investors.  

Two-third of startups believe the COVID impact will last up till 12 months.

On the flip side, more than half (54%) of the startups are looking to pivot to new business opportunities, 40% want to diversify into growth verticals like healthcare, and 50% are enhancing focus on emerging tech like AI, IoT, Cloud. 

While 50% of startups consider Artificial Intelligence (AI) as a big technology opportunity, 40% startups consider Healthcare as a big vertical opportunity.

The survey notes that immediate government intervention is essential for survival of startups, with 70% of startups looking for policies that support easing of regulations and opening up of government procurement, and nearly 50% of startups looking for partnership opportunities. 

The survey concludes by specifying five imperatives for the Indian startup ecosystem to navigate the COVID crisis as follows: look for pivots and new opportunities; drive and incentivise production and adoption of ‘Made in India’ products; encourage digitisation of impacted areas like local stores; have alternate sources of funding like bank loans, NBFCs; and build partnerships with tech solution providers, customers.   

Nasscom conducted the e-survey during April 2020 and the responses received were analysed considering various parameters like growth stages, revenues, employee strength, verticals etc. 

Over 250 startups with diverse profiles participated in the survey which included 45% mid stage startups, 30% mature startups and 25% early stage startups.