The year has been nothing short of dreadful for businesses. The pandemic took a massive toll on the startup ecosystem in the country which saw numerous layoffs, paycuts and shutting down of operations. From the months of March to June 2020, around 40% of startups were negatively impacted, and 15% of Indian startups were forced to discontinue operations due to COVID-19, as per a report.
The report highlighted that 2019 was an all-time high for startups with India becoming the 3rd largest startup ecosystem in the world. The country had a total of 26 unicorns till January 1, 2020, and Indian startups received $14.5 billion funding.
The report- ‘Covid 19 and Antifragility of Indian Startup Ecosystem’ by TiE Delhi-NCR and Zinnov, revealed that there was a dip in overall funding by 50% during the lockdown as compared to pre-COVID levels.
Presenting the report in a digital conference, Rajan Anandan, President- TiE Delhi-NCR and MD at Sequoia Capital India, said, “The decline was even more prominent in seed and early-stage investments. There had been a 48% YoY decline in funding by CY Q2 and 37% decline in the number of deals in CY Q2. And, the industry saw more than 55% YoY decline in seed and early-stage funding in CY Q2 2020 and 38% YoY decline in funding in early-stage startups. Similarly, we saw a significant decline in late-stage funding also.”
However, the industry saw gradual recovery from the month of September and most segments appear to have recovered to pre-Covid levels. According to the report, the shift to digital consumption has provided the necessary tailwind to sectors such as education, healthcare, and commerce; while several sectors like travel, hospitality, and mobility, that were negatively impacted, are now on a recovery path.
The report stated that 75% of startups are gradually recovering post lockdown. Nearly 30% of startups have pivoted to newer markets for alternative revenue streams, while over 55% of startups are focusing on profitability and reducing cash burn.
Further, deal activity – both in terms of total investments and the number of unique funded startups – has recovered to pre-COVID levels during the quarter that ended in September 2020. Interestingly, four Indian startups gained the unicorn status amidst the pandemic and the country is expected to have 8 unicorns in 2020.
Coming to jobs, the report stated that the startup ecosystem is expected to have 7-7.5 lakh direct jobs and 26-28 lakh indirect jobs in total, by the end of 2020.
Highlighting the factors that helped that reflect the ecosystem’s resurrection, the report showed a pickup in M&A activity and seed as well as late-stage funding. In Q3, the Indian startup ecosystem showed positive signs of recovery – funding reverting to 98% of Q1 (pre-COVID) levels, investor sentiments becoming positive, ticket sizes increasing, a number of startups raising their first investment round also reverting to Q1 (pre-COVID) levels .
Anil Agarwal, Joint Secretary, Department for Promotion of Industry and Industrial Trade, Ministry of Commerce and Industry, Government of India, said, “It is very heartening to see a number of sectors getting back the pre-COVID levels. In the health sector- teleconsultation has seen the highest growth during this period. Meanwhile, other sectors have pivoted to survive during this time. Travel and hospitality will still take time to revive. We are almost at the end of the lockdown and I believe this is the time for these sectors to catch up.”