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Covid-19: Start-Ups Chanting Innovation Mantra To Take Off From Pandemic Impact

Author: Dasari Sreenivasa Rao/Wednesday, October 7, 2020/Categories: Exclusive

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Covid-19: Start-Ups Chanting Innovation Mantra To Take Off From Pandemic Impact

22% of start-ups have cash reserves to meet the fixed cost expenses; 70% of start-ups suffer from Covid-19 impact, 12% shut operations; 33% start-ups say investors put investment decision on hold, 10% stated that the deals have been called off

Start-ups and MSMEs across India have been hit severely by Covid-19 pandemic and the turbulent situation forces them to explore and innovate alternative business plans to stay afloat. Majority of about estimated 53,000 startups in India are suffering from sluggish demand, operations, funds crunch, revenue loss, etc., while reasonable number of them  are in the process of making a comeback with AI-driven new business dynamics. It’s estimated that technology startups account for 20 per cent of total number. On other hand, defying the odds generated by Covid-19, Telangana is going ahead with its second phase of T-Hub, India’s largest technology incubator, which is expected to be operational in 2020. However, with uncertainty in the business environment and an unexpected shift in the priorities of the governments as well as the corporates, many start-ups are struggling to keep the operations going, observes a latest report from Ficci-IAN. 

The Covid-19 pandemic has had an unprecedented impact on the Indian businesses and more so for the SMEs and Start-ups. Federation of Indian Chambers of Commerce and Industry (Ficci) in association with the Indian Angel Network (IAN) of 250 start-ups jointly carried out a nationwide survey on the ‘Impact of Covid-19 on Indian Start-ups.’  The survey listed out the major problems that include huge pressure owing to lack of working capital, no funding support, etc., while suggested measures such as mentoring and handholding support to the startups. The experts also suggested that startups should re-think their businesses and evolve as per the current situation. Startups must use their strengths in innovation to re-strategize and re-think their business.

About 70 per cent of start-ups stated that their businesses have impacted by Covid-19, about 12 per cent of the start-ups have shut operations and 60 per cent are operating with disruptions.

The survey depicts that only 22 per cent of the start-ups have cash reserves to meet the fixed cost expenses of their companies over the next 3-6 months. The findings show that 68 per cent of the start-ups are majorly cutting down their operational and administrative expenses. Close to 30 per cent of the companies stated that they will lay off employees if the lockdown was extended too long. About 43 per cent of the start-ups have already started salary cuts in the range of 20-40 per cent over the period of April-June 2020. 

On the investment front, 33 per cent start-ups said that the investors have put the investment decision on hold and 10 per cent stated that the deals have been called off. Only eight per cent start-ups received the funds as per the deals signed pre-Covid. The reduced funding has led start-ups to put a hold on their business development, manufacturing activities and has resulted in loss of projected orders. The survey highlights the need of an urgent relief package for start-ups including possible purchase orders from the government, tax relief and swifter tax refunds. Further immediate fiscal support measures including grants, soft loans and payroll grants need to be provided.

Besides 250 start-ups, 61 incubators and investors also participated in the survey. 96 per cent of the investors stated that the investment in start-ups have been impacted by Covid-19. 92 per cent of the investors maintained that the start-up investments will continue to be low over the next six months. 59 per cent of the investors said they would prefer to work with their existing portfolio companies in the coming months and only 41 per cent stated that they would consider new deals. A comparison of priority investment sectors pre and during Covid-19 shows that 35 per cent of the investors are now looking at investments in healthcare start-ups followed by EdTech, AI/Deep Tech, FinTech and Agri.

About 44 per cent of the incubators surveyed highlighted that their day-to-day operations have been considerably impacted by the Covid-19. Most of the incubators are now supporting their portfolio companies by providing them virtual platforms to interact with mentors, investors, and industries.

Dilip Chenoy, secretary general, Ficci, said: “The start-up sector is stressed for survival at the moment. The investment sentiment is also subdued and is expected to remain so in the coming months. Lack of working capital and cash flows may lead to major layoffs over the next 3-6 months by start-ups. The survey indicates that the Indian start-ups need an enabling ecosystem and flow of funds to continue operations.”

Ajai Chowdhry, Chair, Ficci Start-up Committee, and founder, HCL, adds: “The start-up sector should be viewed as a propellent for the country’s growth and a contributor to India’s vision of being Atmanirbhar. Start-ups have a huge potential to innovate. However, in the current times, the start-up companies are reeling under huge pressure owing to lack of working capital. We need to act now to save a huge number of innovations created in the last few years. And government and industry need to reach out to support them through funding and business opportunities.”

Padmaja Ruparel, president, Indian Angel Network, and Co-Chair, Ficci Start-up Committee, said, “in these uncertain times, as investors, we must play an important role to provide the Indian startups funding, mentoring and handholding support to stay afloat and come out at the other end of this crisis. To that end, IAN recently announced a Debt Fund to help IAN portfolio companies raise working capital and ensure business continuity, by partnering with Debt providers. This must be replicated on a wider scale, so a larger number of start-ups are provided the capital support to make it during these tough times.”

Ganesh Raju, Co-Chair, Ficci Start-up Committee, and Founder, TurboStart, said: “The survey results clearly indicate that the startups are struggling in this unprecedented time in our history. To navigate the evolving situation, startups must focus on cash preservation so sufficient capital is available to ride out the crisis. While some have been able to secure new funding, others might want to consider alternative sources of funding. We have also seen a number of startups, re-think their businesses and evolve as per the current situation. Startups must use their strengths in innovation to re-strategize and re-think their business.”

Mentoring

Telangana state is leading the startups segment in India. Rejig.HydStartups, an initiative by the Telangana State Innovation Cell (TSIC) and T-Incubators and Enablers has initiated mentoring programme for the startups. The initiative will support start-ups in reimagining and repositioning their business model post-Covid-19 pandemic. It invited applications from startups and has received over 300 applications and 100 start-ups from domains such as life-sciences, fintech, manufacturing, agriculture, FMCG and emerging technology, have been selected to be part of the mentoring programme.

Rejig.HydStartups is spread out in three-weeks of mentoring to help start-ups connect with investors or gain corporate market access, will see a three-pronged approach -- understanding the concerns of the start-up with a completion of leg work assigned by the mentor, understanding the change of strategy, and a revised pitch.

The programme will culminate in a massive pitch day event where the start-ups will be pitching for equity funding, collateral-free debt funding, or corporate market access.

It also organized a webinar involving ecosystem catalysts to understand the impact of the pandemic on the start-ups and expectations from the founders to become resilient.

“Hyderabad will be standing out for its city as a whole approach through this important initiative Rejig.HydStartups to support the start-ups in coming weeks to become resilient post-pandemic. Even the applications that we received was a truly relevant mixture of industry sectors that require immediate attention,” said Jayesh Ranjan, Telangana IT secretary.

The webinar also saw a panel discussion involving Ravi Narayan, CEO of T-Hub & CIO of TSIC, Sridhar Pinnapureddy, Founder Chairman of CtrlS Datacenters, currently the President of TIE Hyderabad, Sateesh Andra, Managing Director of Endiya Partners, an established VC and investor. Panel was moderated by Deepanwita Chattopadhyay, CEO of IKP Knowledge Park.

The webinar received experiential insights from the experts and urged the startups to relook at their business models and be willing to reimagine during the toughest crisis. Some of the steps founders could take range from identifying the alternate market for the existing product or service, rationalising the product or service, smart cost optimisation, to look out for answers by discussing with the customers, mentors, and investors.

One of the important mentions by all the panellists towards betterment was founders' resilience, the fact that the investments largely are done based on the strength of the business model and quality of the human capital.

Chattopadhyay said that it is a great opportunity not just for startups but also for the incubators and enablers to collectively contribute to the start-up ecosystem in the times when mentor access is important for founders to get a sounding board.

T-Hub in 2nd phase

Telangana government has been implementing the expansion plan for T-Hub. The number of startup companies at T-Hub rose from 400 to over 2,000. ToHub also revealed that it encouraged 400 companies to launch corporate innovations. The second phase is expected to be ready by December 2020. The second phase was earlier scheduled to be completed by the end of 2019. Telangana IT Minister KT Rama Rao said that “the 3.50 lakh square feet facility is being built at a cost of Rs 276 crore at Raidurgam in Hyderabad. It can house 1,000 startups at the same time. So far, 1,120 start ups have garnered Rs 1,800 crore as investment and provided employment to over 2,500 people.

Telangana government set up the startup catalyst T-Hub in November 2015 and it as transformed as the largest and the best technology incubator in the country. The State government is promoting innovation across all sectors. KTR further stated that the idea of T-Hub will be expanded beyond Hyderabad to set up similar facilities in tier-II cities like Karimnagar, Nizamabad, Khammam and Warangal. These T-Hubs would concentrate more on social and rural innovation. 

Further, measures have been taken to enhance innovation in the agricultural sector with I-Hub in partnership with ICRISAT. Under a new initiative, I-Hub will be linked to all Rytu Vedikas being constructed across the state to disseminate information such as pest control , when to sow and harvest to farmers. About We-Hub, meant for promoting women-led startups to encourage women entrepreneurs in Telangana state.

'Intinta Innovator' programme of Telangana State Innovation Cell (TSIC) is aimed at encouraging young rural innovators. This programme is up and running in 120 plus colleges and many more schools. So far, about eight MoUs have been signed with different state governments including Goa, Delhi and Assam where Telangana acts as an innovation partner. Mentioning about Telangana Academy for Skill and Knowledge (TASK), the minister stated that the government is training the local youth to improve their skills and make them industry-ready.

Considering the recovery in startup space, banks are coming forward to support them. India’s second-largest private sector lender ICICI Bank started a dedicated iStartup 2.0, for the segment with improved features.

In July, as many as 20,000 start-ups registered with the Ministry of Corporate Affairs (MCA) and the number further went up in August. The trend has been encouraging in September as well. ICICI Bank says it’s been serving an undisclosed number of start-ups as part of the earlier offering and other offerings. The bank sees the addressable opportunity is large as 8.5 lakh start-ups have been registered since 2010. New businesses (up to 10 years old), including partnerships, private and public limited companies as well as limited liability partnerships, can opt for current account, the bank said. When asked if the offering, which also includes lending, was driven by the recent change in norms to include loans to start-ups under priority sector lending.

The writer is a business journalist with 27 years of experience

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