Will this Bubble burst for Indian Startups? What is coming..
Like most businesses around the world, start-ups are encountering tough times. Innovation is a much clichéd term in today’s startup world. Very few are providing something humans actually need for survival or doing things that are truly innovative.
Many companies are in a hunt of business leaders who can handle the so-called complex jobs with dexterity. When you dare to compete in the business ecosystem as an Entrepreneur or a Solopreneur trying to solve real-world problems, presenting your solutions to business leaders and venture capitalist is like an Aha.. moment.
But, the current scenarios into the business world amid COVID-19 has seen a lot of backlash to the business world stardom. This pandemic has forced the business houses to shut down their operations.
The markets are low, highly volatile with a dissonance on its revival. Many business leaders have still got their eyes on the global market cues while the Government is trying it’s best to stimulate the economy.
Covid-19 Pandemic are translating into layoffs
Companies are slashing workforce salaries in the name of business restructuring and environmental changes. Nearly $200 billion IT services industry shifted to a work-from-home model overnight. The situation is grim and the economy has to see an unprecedented collapse. Any news on infections or a specific sector will have an impact on the markets. Look at the NSE sharp fall.
Take for example the travel, tourism, and hospitality sectors, which haven’t received any direct financial assistance from the government’s Rs. 20 lakh crore Atmanirbhar package. They have begun laying off their staffs as they have zero revenue since the last three months.
For Softbank, which funds many of the Indian startups (unicorns) like Ola, Paytm, PolicyBazaar, Grofers, Oyo, Delhivery has posted a loss of $17.7 B USD for its vision fund. As per Softbank (also funded WeWork and Uber) this has been the worst in their 39 years’ history. Alibaba’s founder, Jack Ma, has decided to leave the board of Soft Bank.
India received a cumulative $456.91 billion in FDI, with over 72 percent of it coming from just five countries – Mauritius (31 percent), Singapore (20.7 percent), Japan (7.2 percent), the Netherlands (6.7 percent), and the United States (6.2 percent). The proportion of China’s FDI in India during the same period constituted a mere $2.34 billion (0.51 percent) of total inflows. India China FDI gamble.
Gateway House has posted the Indian unicorns with Chinese backing. Through these investments in start-ups, India may find its economy tied closer to China’s economy. Here is the state wise breakdown with Startup, Portfolio and Direct Investments
Early Warning Signs
Zomato’s and Swiggy’s business has dropped by around 70%. Swiggy laid off 1100 employees. Zomato had earlier laid off 500 employees, all in the last week. Other Zomato employees have taken a pay cut off up-to 50%. Around 40% of the restaurants maybe shut in the next one year and an estimate of around 7 million jobs will be on the line only because of the restaurants closing down.
For businesses like Zomato and Swiggy, It is almost like a high margin, low volume business model. Most Indians would happily go to the restaurant to pick up their food instead of paying an extra Rs. 50-70 as delivery charges.
Ola had a 95% decline in revenues and laid off 1400 employees. Uber fires 600 Indian employees and globally 3700 employees in 3 minutes . Oyo has laid off 2400 in India, 5000 in USA, 7000 in China & now plans to layoff in UK.
Paytm, an Indian e-commerce payment company, which convinced millions of Indians to substitute digital payments for cash has laid off 500 employees. Honestly, Paytm has become redundant after the Unified Payment Interface (UPI).
Paytm faces the moment of truth (One 97 Communications Ltd) which once has spent nearly ?14,500 crore to convince Indians to substitute digital payments for cash.
Recognize these number, the Loss Summary
The index contracted by 55.5% compared with the same period a year earlier. That includes sectors such as mining, manufacturing and electricity. Manufacturing of consumer durable saw the sharpest decline for the month. – CNBC Economic Impact
The Indian Startup Unicorns has listed the following losses in this Covid-19 pandemic.
– Ola: $339 million USD loss;
– Swiggy: $315 million USD loss
– Zomato: $294 million USD loss
– Oyo: $335 million USD loss
– Paytm: 549 million USD loss
– Delhivery, Policy Bazaar, Grofers posted a loss of $236, $29, $60 million USD.
- Nasscom says, 40% of startups have less than a 1-month runway
- KPMG says, nearly 50% of total layoffs will happen in startups and worst is in mid-July 2020.
- VCs are already talking about revisiting their valuation strategies
- Reports are out in public claiming that funding for startups have started drying off. Some Startups might go bankrupt.
- Stock markets have crashed across the globe and may further go down.
On the other hand, Reliance Jiomart which is similar to Amazon, Grofers, BigBasket, NaturesBasket has already started and live across 200 cities in India. Again, direct threat to small e-tailers and e-commerce players.
The lockdown has increased usability of education technology startups as they are widely using gamification to keep their audience engaged.
What does this all mean for the Indian startups?
While we are used to a high-touch and contact environment. We have to enable contact-less interactions as we live in this new environment. Companies will have to cope up with the new norms, undertake sanitization exercises, ensure contact-less transportation to ensure people’s safety.
The Coronavirus pandemic will shift the consumer behavior.
Entrepreneurs trying to build businesses need to understand this shift first. They need to be prepared for further uncertain lock downs. Market valuations have gone down and will go down further.
Whenever investors doubt other investors’ willingness to invest into a business, there is a chain reaction. The new FDI regulation in will affect several industries, companies, funds, and individual investors from China which were planning to invest in Indian companies. The government is mulling over speeding up the approval process.
The real goldmine seems to be the customers’ data. Which is quite attractive to big international companies trying to set up shops in India. But the pandemic has spoiled their plan it seems.
Startups depend a lot on personal and social exchanges to stimulate creativity and experimentation. The disassociation from physical work spaces, co-working spaces and incubators, might truncate social interaction.
How long can you possibly run a business that relies on getting customer loyalty based on discounts and cashback? I have already discussed the new mantras to sustain slow economic environments.
How severe the impact is in the future going to depend on which industry you are in and the clients that you have.
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