Rising Uncertainty On The Start-ups At The Verge Of Collapse
The COVID-19 recession is battering startups, with 40% of 250 start-ups surveyed by NASSCOM having halted business altogether. 92% of all start-ups have faced some level of revenue decline. Around 62% of surveyed start-ups are suffering revenue declines of over 40%, with 34% suffering a revenue decline of over 80%. Many startups’ very survival is uncertain, as 70% of all start-ups have only a 0–3 month runway, beyond which they won’t be able to stay solvent without intervention. It’s worth noting that half of the surveyed start-ups were in the fintech, ed-tech and health-tech sectors.
An good idea with strong execution power may not fail and they need to be exceptionally talented founders ,coupled with cash power. Second most important , thing is most startups are struggling to find product/market fit and it’s often because they aren’t able to execute their idea – they can’t turn it into commercial reality and that’s where we come in.
The outbreak of Covid-19 pushed India into a stringent lockdown which resulted in the depletion of overall business confidence not only in startups but the economy as a whole. Between February and March 2020, the purchasing manager index (PMI) manufacturing an important economic indicator to determine overall business confidence, plunged from 54.5 (February 2020) to 51.8 (March 2020), furthermore in April 2020, the index shed 23.4 points tumbling down to 27.4, the sharpest deterioration since the data collection began over 15 years ago. The biggest concern is survival ,which is the bigger priority than valuation. Not only has valuation gone down for many startups but they have also witnessed a sharp decline in their valuation.
Given the flexibility which technology-enabled businesses enjoy, the resilience of some new-age sectors such as hyperlocal ecommerce, edtech, healthtech and online gaming and digital media managed to carve out some growth. The total funding raised by Indian startups saw a massive dip between March and April 2020. The total capital inflow plunged by a whopping 55% from $1.05 Bn in March to just $474 Mn in April and $222 Mn in May.
The startup sector is in deep stress for the survival at the moment and lack of working capital and cash flows may lead to major layoffs over the next 3-6 months.
However, the neo-banking segment in the Fintech sector, is becoming the new hot cake within fintech, in addition to new ventures established fintech companies are also keen on venturing into this segment. There are selected startups into payment gateways, PoS machines, mobile wallets etc. to attract few investments.
The overall funding scenario does give us an idea of the startup sectors which are witnessing the increased investor confidence during the pandemic but fails to determine which sectors can be considered best suited for new venture opportunities. At this time investors are searching to invest in certain startups ,which they can get at the throw-away pricing, since lack of funding could put a full stop to their vision. Only startups with higher EBITDA and positive economies of scale will be able to sustain through the recession.
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