What is a Startup?
Startups being scrappy young ventures with a unique business model and a unique idea are young companies just beginning to develop.According to the Startup India Scheme, 2016, an entrepreneurial initiativewith the existence of 10 or fewer years,incorporated as a Private Limited Company, a Registered Partnership Firm or a Limited Liability Partnership, having less than 100 million annual turnover per annum andheadquartered in India qualifies for a startup.Having a unique idea and differentiate model, startup stands out among all the traditional businesses. It not only focuses on earning profitsbut identifies as well as solves a big problem of the society. They work towards the development or improvement of a product, process, or service and have a scalable business model with high potential for the creation of wealth and employment.
With more than 130 million cases and over 2.84 million deaths worldwide, coronavirus had adversely impacted the overall investment sector. Up to 53% of businesses in the country were projected to be significantly affected as supply chains have been put under stress with the lockdown restrictions in place. Big corporate houses and PSUs had to suspend services or significantly reduce their operations. Among the most hit sector is Tourism and Hospitality which contributes to 10% of the Indian Economy. While businesses across the sectors faced severe repercussions due to COVID-19, Startups being one of the most vulnerable sectors have also been impacted to a larger extent due to the sudden fall in funding and cash flows in the startup market.
Indian Economy and the Startup Industry
The Indian economy is the fastest growing and the sixth-largest economy in the world. The investment sector of which accounts for 25.9% of the total Nominal GDP in December 2020. Over the last few years, startups are gaining a lot of popularity in many parts of the world. India provides a vast commercial potential for startups and is nowranked the third-largest startup hub of the world, Bangalore being the startup capital. The investments in the startup industry have seen a drastic surge from $550 million in 2010 to $14.5 billion in 2019. India has now 38,756 officially recognized startups and 27 unicorns in 2020.The reason for the robust growth of startups in India is their innovative business concepts with sufficient support in the form of funding from the government as well as outside sources. Prime Minister Narendra Modi also launched Startup India Scheme in 2016 to the strongarm startup industry. For instance,the online food ordering and delivering platform Swiggylaunched in 2014is now a business unicorn with total funding of $1.27 Bn. Likewise, many other startups have emerged in recent years. But, due to the outburst of the coronavirus, the startup industry faced a major hit.
Impact of Pandemic on Startup Industry
I. Sourcing of Funds/Investments
Funds are one of the most crucial elements required for a startup. According to the investors surveyed by Indian Angle Network and FICCI, the startup investments will continue tobe impacted over thenext few months. It was also found out that during the lockdown, only 8% of startups were able to collect the funds. According to the survey titled “Impact of COVID-19 on Indian Startups” for 33% of startups, investors have put their decision on hold, while, 32% have received no response. The remaining 17% are yet to obtain funds while 10% got their deals canceled. Funds are the most essential and crucial element for any startup, especially at the early stage. Covid's influence on startup funding isn't going anywhere anytime soon.
Startups serve as a medium of job creation as it requires a combination of both innovative idea and manpower. The lockdown cost 122 million jobs in its first month, according to the Centre for Monitoring Indian Economy (CMIE), a private-sector think tank. In May, the loss was reduced to 100.3 million, and then to a much smaller 29.9 million in June. The number of people who have lost their jobs has decreased to 11 million in July. In April, 17.7 million salaried workers were lost.In May, another 0.1 million jobs were lost. Then, in June, 3.9 million jobs were added. In July, however, five million jobs were lost. Since the lockdown started, the plight of salaried workers has gotten worse on a net basis. They lost 17.7 million jobs in April. However, by July, the loss had risen to 18.9 million.
According to “India Tech Annual Factsheet-2019”, the Startup industry has a contribution of $14.5 Bn in the Indian economy. Annually, the startup industry contributes large sums to the economy. According to the Ministry of Trade and Commerce, the exact amount is yet to be known. On one hand, pandemic resulted in the hindrance of cashflows and investments, while, on the other, many people lost their jobs. Thus, it resulted in a decline in GDP to a certain extent bringing an economic slowdown.
IV. A decline in the startup ecosystem
Admits pandemic, the Indian startup ecosystem is also on the verge of failure. Based on inputs from more than 250 Indian startups, NASSCOM’s Start-up Pulse Survey-Q1 2020 study, Reviving the Indian Start-Up Engine During Covid19: Imperatives and Recommendations (released in May),90% are experiencing sales declines, 70% have a runway of fewer than three months, and 30-40% are in the process of temporarily or permanently shutting down.
V.Growth of new Startups
Admits the pandemic, the country saw a decline in the number of new startups. The total number of tech start-ups in India fell by 44.4% i.e., 5,509 to 3061.The decline in new entrants can be seen in a range of industries, from fintech to retail to business applications.
Role of technology in functioning of startups during the pandemic
The challenges in times of Covid have also proved to be a great opportunity for some startups. Since March, the sector has seen a whirlwind of activity, with companies releasing a variety of sanitizers and masks, as well as health-care assistive applications, as well as developing ventilators, personal protective equipment kits, and experimenting with various Covid-19 studies.Startups have been forced to move quickly due to the lockdown.The largest transition in 2020 is on the customer side, as technology will have trickled down to smaller cities.Big e-commerce players During the lockdown, focused on shipping necessities to meet the spike in demand.According to management consultancy company Redseer, online revenues reached $8.3 billion in gross merchandise value (GMV) from mid-October to November, up from $5 billion the previous year.
Startups in India are currently undergoing a golden age in the country's entrepreneurial history. However, the Indian government still has a critical role to play in positioning India as the world's Tech Garage. It should serve as a catalyst, bringing together the private sector's synergies with the aim of innovating for India and the rest of the world.The lockdown has affected not only everyday business activities but has also forced many start-ups to prepare contingency plans to reduce workforce and employee wages. Several startup founders have also taken pay cuts to limit their losses.The pandemic has brought years of changes in the way these companies deal and work
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