25% Of Indian Startups Could Perish Under Covid, Warns Kris Gopalakrishnan

Infosys cofounder and former president of the Confederation of Indian Industry (CII) Kris Gopalakrishnan has warned that almost 25% of Indian startups have less than six months of runway left. He added that they would be in serious trouble if the disturbance caused by the Covid-19 pandemic continued.

The point was echoed by Ashish Tulsian, CEO and cofounder of restaurant management SaaS company POSist while speaking to Inc42 cofounder and CEO Vaibhav Vardhan at the ‘Ask Me anything’ series. Tulsian had said that entrepreneurs who have limited cash in the bank, need to maximise their runway.

Tulsian had specified that the entrepreneurs have taken charge of managing cash flows, by even foregoing their salaries. He highlighted that several entrepreneurs have also announced that they won’t draw a salary for the next few months for varied reasons — donations or to support the company’s runway issues.

Need For Fundraising And Challenges Ahead

Speaking to Mint, Gopalakrishnan added that both these 25% of startups and the other 75% of the Indian startups would need additional funding in order to have enough working capital. Besides this, he also laid emphasis on banks and government’s support through debt or grants.

Speaking at Inc42’s ‘Ask Me Anything’ series, 3One4 Capital’s founding partner Siddarth Pai, and Lightbox Ventures’ partner and cofounder Siddharth Talwar had elaborated on the decline of venture capital amid the pandemic.

Maintaining that the days of easy money are over, Pai said venture capitalists were going to focus on ‘Portfolio Protection’ in order to save companies that exist in their portfolio, instead of making new investments.

VCs that have raised 50% of the fund target, will invest only 30-40% of this corpus in new deals, while those who have raised more than 50% of the target corpus will stay away from companies with high valuations, reserving almost 70% to 90% of the fund for their portfolio companies.

Meanwhile, VCs that have already drawn out 85-90% of their capital and have few capital reserves would opt for voluntary deductions across the board in order to make their portfolio companies stay afloat, he added.

This would mostly hamper early-stage startups, whereas growth-stage startups can still see a slump. Talwar from Lightbox added, “I think the reason is that there’s fear, it’s not that there’s no capital. There’s capital there’s just fear of the unknown. We don’t know what’s going to happen next. So it’s not a money problem as much more to do with other factors.”

Sequoia India’s managing director, GV Ravishankar, in conversation with Inc42, had said that the VCs will raise the bar for investments and the companies that do not have a unique model might not get capital anymore. Besides this, entrepreneurs will have to answer some tough questions to VCs and funding rounds may take a little longer than usual to close.

However, Talwar also added that the fundraising in the early stage startups would also depend on the type of businesses they are running.

Which Businesses Will Survive?

Meanwhile, Gopalakrishnan added that the situation of the Indian startup would also depend on the segment they are catering to. For instance, ecommerce companies and food delivery have already started to resume operations. Meanwhile, the travel and mobility segment has been hit, but same cabs and commercial taxis are being used for logistics support.

Talking on the same lines, Ankur Pahwa, partner and national leader ecommerce and consumer internet at EY India, told the Mint that B2C companies will have to wait for demand to pick up under discretionary spends. He noted that the demand for work-from-home essentials is picking up considerably.

Meanwhile, Tulsian added that the post-Covid world is going to be a ruthless one. People, customers and industries will let go of any product which is extra and focus more on those products that offer value additions into their lives. Businesses, which have managed to service their customers well all this while, need not worry about bouncing back, he had emphasized.