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COVID Impact Halted Operations of 15% Start-ups

The Negative Impact of COVID on Start-ups

The impact of COVID-19 has been severe on the Indian start-up ecosystem during the lockdown as 15 per cent of start-ups have halted operations.

According to a report by TIE Delhi-NCR and Zinnov, 44 per cent of start-ups have cash runway for less than 6 months, 41 per cent of startups have been impacted negatively while 52 per cent are struggling to raise capital.

The report witnessed a decline in the overall pace of investments, especially in April to June 2020, a 48 percent year on year decline in funding, and a 37 percent year on year decline in the number of deals in the quarter.

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As per the report, less than 50 start-ups raised their first round of funds in Q2 2020. There was a sharp dip in percentage share of total funding for B2C start-ups from 65-70 per cent in Q1 2020 to 30-35 per cent in Q2 2020.

The decline was even more prominent in seed and early-stage investments. More than 55 per cent year on year decline in seed and early-stage while 38 year on year decline in late-stage funding in the quarter.

Start-ups
41 percent of startups have been impacted negatively while 52 percent are struggling to raise capital. Unsplash

There was a more than 50% decrease in early and late stage total funding in Q2 20 as compared to Q1 20. Seed stage deals dropped most at 30 percent in Q2 with investors majorly placing their bets on mature start-ups. Enterprise Tech, BFSI, Healthcare, and Edtech combined have raised 60-65% of the Q2 funding in 2020.

The report notes that the COVID-19 impact has varied significantly by sector and several sectors have significant tailwind due to the pandemic; while others have recovered quickly.

“We do have sectors that are still deeply impacted and would recover very slowly Indian ecosystem, led by entrepreneurs, responded quickly and effectively to COVID-19 in response to rapidly evolving market dynamics, customer preferences and operating conditions,” the report said.

The report says the Indian start-up ecosystem will grow from strength to strength and eight unicorns are expected for the calendar year 2020.

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100 Unicorns and 60,000-62,000 active start-ups are estimated by 2025, the report adds. The key indicators are positive on back of upbeat investor and entrepreneur sentiments.

Equity investments and M&A deals have almost reached pre-COVID levels and 4 unicorns were added while the pandemic was at its peak, bringing total Unicorns to 33. (IANS)

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