A survey conducted by social media and community platform LocalCircles to check the impact of the COVID-19 pandemic and the resulting lockdown on startups, and Small and Medium Enterprises (SMEs) in India has found that only 16% have 3-6 months of cash left. Further, 30% said they have only 1-3 months of cash left, 12% said they have less than a month’s worth of cash left while 38% said they are out of funds already. Another 4% also said that they have already shut down their business due to the lockdown effect.
Coronavirus, along with a health emergency, has brought with it many struggles for India’s startups and SMEs. Since the start of the lockdown in the last week of March, startups and SMEs have seen a drastic fall in revenues and have been struggling to make ends meet. Some of the most well-funded startups in the country have announced layoffs and furloughs and have been scampering to reduce cash burns in the race for survival.
Many businesses have reported a revenue drop of more that 80-90% in the last 2 months making it hard for them to even sustain their business.
The survey shows that from April to June 2020 the percentage of startups and SMEs that are out of funds or in shutdown stage has risen from 27% to 42%, indicating a worrisome situation.
Startups and SMEs were also asked what they have done in the last 3 months to better prepare to sustain their business. 6% said they have cut or deferred marketing costs while 10% said they have cut or deferred human resource costs. 64% said they have cut or deferred marketing costs, cut or deferred human resource costs, cut or deferred fixed operating costs as well as deferred tax payments. 10% said they couldn’t or didn’t do any of the above while 10% said that they had to shut their business.
A majority of startups and SMEs cut or deferred marketing, human resource and fixed operating costs as well as deferred tax payments in the last 3 months to sustain themselves amid the pandemic.
When asked what they see happening with their business in the next 6 months, 35% said they see growth while 35% said they would be scaling down. 14% said they see their business being shut down while 16% said they were quite unsure of the future.
This means that only 35% of startups and SMEs see growth happening in their business in the next 6 months, while the rest see shutting down, scaling down or uncertainty. Many companies have been trying to raise funds in the last few months but have not been able to do so due to reduced investor interest and liquidity drying up.
The survey shows that from April to June 2020 the percentage of startups and SMEs seeing growth in the next 6 months has risen from 13% to 35%, indicating that some startups have found new revenue streams or markets. While this may be a silver lining, the majority of startups and SMEs still expect scaling down or shutting down in the next 6 months indicating difficult times.
The survey received 28,000+ responses from 8400+ startups, SMEs and entrepreneurs located across the country.
The average daily cases of COVID-19 in India have risen from 2,000 a day in late April to 11,000+ a day now. When asked if their SME or startup stands to benefit from the Aatmanirbhar Bharat stimulus package announced by the government over a month ago, only 14% said ‘yes’ while 57% said ‘no’ and 29% were unsure.
The cabinet approved a Rs 3 lakh crore emergency credit line for the MSME sector to bail it out through this tough time. But a large number of startups might not be able to avail the benefits under the Atmanirbhar Bharat scheme even if they are registered as MSMEs. This is because a startup needs to have existing debt/loans on their books to qualify, but most startups usually opt for VC (venture capital) funding, which makes them ineligible for the government scheme, LocalCircles says.