Moneycontrol PRO
Upcoming Webinar:Prashant Shah explains ‘Irrelevance of Bull & Bear Markets for Success in Technical Analysis’. Register For Free!

Indian start-ups get creative as coronavirus crisis fuels funding crunch

Samik Sarkar was managing to eke a profit out of his online apparel store before the coronavirus crisis hit India, forcing the 36-year old to reinvent his business overnight.

May 11, 2020 / 08:49 AM IST
Startups

Startups

Samik Sarkar was managing to eke a profit out of his online apparel store before the coronavirus crisis hit India, forcing the 36-year old to reinvent his business overnight.

"I started selling masks because that's all I could sell," Sarkar said. "I have salaries to pay."

The rapid global economic slowdown, India's coronavirus lockdown of 1.3 billion people and an exodus of venture capital are testing a start-up community that has quickly become one of the world's biggest, raising a record $14.9 billion last year.

The success of Indian e-tailer Flipkart, sold for $16 billion to Walmart in 2018, helped draw in billions of dollars in funding from global venture capital firms, while U.S. and Chinese tech giants stalked promising prospects.

But in just a few months much of that cash has vanished, with venture capital and private equity investment in India expected to fall by 45%-60% this year, EY estimates.

Close

COVID-19 Vaccine

Frequently Asked Questions

View more
How does a vaccine work?

A vaccine works by mimicking a natural infection. A vaccine not only induces immune response to protect people from any future COVID-19 infection, but also helps quickly build herd immunity to put an end to the pandemic. Herd immunity occurs when a sufficient percentage of a population becomes immune to a disease, making the spread of disease from person to person unlikely. The good news is that SARS-CoV-2 virus has been fairly stable, which increases the viability of a vaccine.

How many types of vaccines are there?

There are broadly four types of vaccine — one, a vaccine based on the whole virus (this could be either inactivated, or an attenuated [weakened] virus vaccine); two, a non-replicating viral vector vaccine that uses a benign virus as vector that carries the antigen of SARS-CoV; three, nucleic-acid vaccines that have genetic material like DNA and RNA of antigens like spike protein given to a person, helping human cells decode genetic material and produce the vaccine; and four, protein subunit vaccine wherein the recombinant proteins of SARS-COV-2 along with an adjuvant (booster) is given as a vaccine.

What does it take to develop a vaccine of this kind?

Vaccine development is a long, complex process. Unlike drugs that are given to people with a diseased, vaccines are given to healthy people and also vulnerable sections such as children, pregnant women and the elderly. So rigorous tests are compulsory. History says that the fastest time it took to develop a vaccine is five years, but it usually takes double or sometimes triple that time.

View more
Show

A group of the top venture firms, including U.S. groups Sequoia and Accel, warned start-ups this month that it will be "very difficult" to raise financing anytime soon.

Five venture capitalists told Reuters that only a few of the best companies from their existing portfolios would be able to get further funding, while most new ventures will likely be locked out for the foreseeable future.

This rapid turnaround has left scores of Indian start-ups which had been plotting expansion and fundraising considering anything and everything to keep themselves from going under.

Data from Tracxn, which monitors start-up investments and financials, shows there were 1,406 funded start-ups in India in 2019, compared with 351 in 2008.

"When you look at pre-COVID business models, half of them will not survive post-COVID," Sudhir Sethi, founder and chairman of Bengaluru-based venture capital firm Chiratae Ventures, said.

For an interactive graphic on Indian startup funding over the years, please view: https://tmsnrt.rs/3bfpT7A

The funding freeze has been compounded by India's move in April to step up scrutiny of investments from overseas, a move seen by some analysts as a thinly disguised deterrent to takeovers by Chinese companies, which have been big investors in India's tech industry.

And with SoftBank, another major funder of Indian start-ups, facing setbacks elsewhere there is little relief expected from the Japanese technology backer.

This leaves investors and start-ups with few alternatives but to focus on pursuing profitability and reducing cash burn, Sid Talwar, partner at Mumbai-based Lightbox Ventures, said.

"For Indian companies, if SoftBank does not write big checks and Chinese pools of capital slow down, it will further accelerate that thinking," Talwar told Reuters.

'BIG SHOCK'

Start-up founders contacted by Reuters said they had enough cash for a couple of months at the most.

"We had big expansion plans just before this hit," said Sujata Biswas, who co-founded Mumbai-based online clothing brand Suta with her sister Taniya.

"All of that has stopped ... It was a big shock," she added.

Suta, which saw sales triple for three years before India's lockdown stopped all business, would be unable to stay afloat beyond a month and a half without a cash infusion, Biswas said.

Cure.fit, a Bengaluru-based fitness firm which had to shut its gyms and health clinics around India, slashed salaries and laid off about 800 people in recent weeks.

It is now trying to get by by offering virtual yoga classes and home-delivering groceries as Indians stay indoors during the lockdown.

BookMyShow, an online ticket seller, is promoting free-to-watch Instagram Live performances in an effort to keep its users engaged, while restaurant aggregator and food delivery firm Zomato is targeting a push into alcohol delivery.

Others such as meal delivery firm Swiggy and hotel operators Oyo and Treebo have shed employees, cut salaries, and put workers on furlough, sources at the companies told Reuters.

Apparel retailer Sarkar said he expected his online store, Rustorange, to see a 50% slump in demand from pre-virus levels even after the lockdown is lifted.

With 35-40 full-time staff and about 70 part-time workers, he only has enough cash for "a month or two". To survive, Sarkar is drawing on his experience of a 2016 funding crunch, which brought down his previous firm.

"We are now trying to think of ways that can be appealing in the new normal," Sarkar said. "We are thinking of developing masks as a fashion accessory."
Reuters
first published: May 11, 2020 08:40 am

stay updated

Get Daily News on your Browser
Sections
ISO 27001 - BSI Assurance Mark