Funding for start-ups in the post-pandemic era

The impact of the coronavirus means that Indian start-ups will have to think out of the box in order to manage cash-flows and attract investors.

The global economic slowdown, accompanied by India’s coronavirus lockdown of almost 1.3 billion people and the exodus of venture capital is on the brim of testing the start-up community. This has become one of the biggest issues for start-ups despite raising a record $14.9 billion last year.

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The successful sale of the Indian e-commerce giant Flipkart, for a whopping $16 billion to Walmart in the year 2018, had aided to draw a steady flow of investments from global venture capital firms.

But within only a few months the cash flows have dried down, leaving the venture capital and the private equity investments in India to fall by an estimated 45 per cent – 60 per cent this year. A clique of the best venture firms, including the large US groups of Sequoia and Accel, have warned start-ups that it would be “very taxing” to raise funds anytime soon.

Trying times for start-ups

The funding freeze has been escalated by India’s move in April of stepping up the scrutiny of investments which it had received from the overseas market. This move is seen by some of the analysts as a disguised deterrent against the takeovers by the Chinese companies, who have been big investors across India’s tech industry.

This leaves the investors and the start-ups with only selective alternatives and to focus on the task of pursuing profitability and reducing the cash burn. Here is a look at some start-ups that are trying to adapt to the financial crunch with innovative ideas.

Adapting to survive

Cure.fit, which is a Bengaluru-based fitness firm, had to lockdown its gyms and health clinics across the country due to government regulations. It has laid off about 800 people and slashed salaries of the retained employees during the past few months. It is now trying to cope up by offering virtual yoga classes as well as home-delivering groceries since people were required to stay indoors during the lockdown.

BookMyShow, one of the leading online ticket sellers, has been promoting several Instagram Live performances, simply to keep the users engaged. On the other hand, restaurant aggregator and food delivery firm Zomato has been aiming to plunge into alcohol delivery.

Several other meal delivery firms such as Swiggy along with hotel operators like Oyo and Treebo have retrenched several employees, deducted salaries, and even put up the workers on sabbatical.

Who will survive?

Start-ups in the enterprise tech, EdTech, FinTech, and media and entertainment sectors are expected to observe a growing investor interest during the coming few months. The AgriTech sector is also drawing in investments, especially in the supply chain tech. A major trend in the Indian market is that the start-ups these days have been focused only on the needs of the businesses in such times of crisis and this has been a major growth area in the weeks after the lockdown. Recent investment trends suggest that majority of start-ups that are getting funded during the crisis are B2B start-ups, FinTech, enterprise tech, media & entertainment, and AgriTech. The future seems to be a bit grim but with the passage of time, things may ease out. However, start-ups will have to think out of the box in terms of managing cash-flows and attracting investors.

*Disclaimer: The views expressed herein constitute the sole prerogative of the author. They neither imply nor suggest the orientation, views, current thinking, or position of FICCI.

Dr Param Shah is Director – UK, Federation of Indian Chambers of Commerce & Industry (FICCI).