The novel coronavirus outbreak – labeled a pandemic by the World Health Organization (WHO) – has severely impacted industries and markets across verticals. With as many as 190,140 confirmed cases (according to data compiled by the John Hopkins University) worldwide, this new strain of the virus has consequently dampened the economic state of many countries.
Major cities are in lockdown, there are travel restrictions imposed by the government, and stock markets are plunging to new lows. Amidst this global crisis, there is one demographic that is facing serious disruptions – the startup segment. The question then arises as to whether startups should brace for worse and optimize their funding strategy.
Impact of Coronavirus Pandemic on India’s Startup Funding Economy
By Dr. Apoorva Ranjan Sharma, Co-founder & Managing Director 9Unicorns, a seasoned veteran in the startup sector and a serial investor
Funding activities likely to drop
The first quarter of a fiscal year is really critical for startups as it requires companies to conduct internal meetings, attend tradeshows, and reach out to potential investors. However, with the cancellation of public events, a partial ban on non-essential travel and the general reluctance to engage in in-person communications, there is little to no scope for networking opportunities. This poses a big challenge to Indian startups looking to raise funding as these networking events provide them access to business angels and HNIs. While seed-funding rounds may not get affected, securing series A, B and C rounds of funding will become harder as such investments require several rounds of meetings between the investors and founders.
Moreover, the restrictions on international travel have put a halt on fundraising activities, especially for startups that are in talks with investors from China and Singapore. Putting things into perspective, China is one of the biggest sources of funds for India’s startup ecosystem. According to data tracker Tracxn, Chinese venture capitalists made investments worth $1.4bn in Indian startups across 54 funding rounds.
Since China is the worst affected country by the virus outbreak, even the deep-pocketed investors are putting off their investment plans for the time being. Adding to that is the sudden drop in the Chinese economy, which is expected to cause a significant slowdown in the startup funding economy in India. Experts also believe that there may be a temporary shift in investment trends due to coronavirus. The focus is likely to move from sectors like travel, logistics and retail to essentials, food and home entertainment.
Startups and VCs in India remain optimistic despite economic uncertainty
The possible impact of coronavirus on startup funding can be large-scale, but there is still hope. A recent report issued by Bain & Company suggests that cash reserves of venture capital firms in India are at an all-time high, indicating investment activities may remain relatively unscathed by the COVID-19 crisis. The report titled, ‘India Venture Capital Report 2020’, further projects that “India’s startup and VC ecosystems continue to thrive as investors take a long-term view based on the country’s growth potential”.
The road ahead: Desperate times call for desperate measures
India is now on the 2nd stage of COVID-19 outbreak, which is the local transmission. The government is taking all the precautionary measures to contain the virus from spreading, and the efforts are bringing positive results. While the scenario may improve over the next couple of months, it’s imperative that the startup community rise up the occasion and help the country effectively deal with the pandemic. Simple, old-school measures such as practising social distancing by mandating work-from-home policies and shifting to telecommuting can go a long way in controlling and preventing transmissions. When it comes to business, startup leaders need to revise their operating plans as the sale cycles will lengthen and average deal sizes will shrink, with the fast-spreading coronavirus sparking fears of an impending recession.
While it’s true that some sectors will suffer more direct and dire implications than others, concerted efforts from all stakeholders are required to mitigate the impact. As the darkest hour is just before the dawn, this is a time for startups to analyze the situations, rethink their funding strategies, and utilize their resources effectively and efficiently.