While the year began with hope and optimism about the new decade for businesses around the world — the pandemic has left many ventures and startups with little or no cash left to operate. In the case of tech startups in India, the pandemic has been a boon for the ones operating in essential services to a certain extent, but the overall impact has been profoundly negative and something no one was prepared for.
As a result, shutdown, layoffs and salary cuts in the startup ecosystem are becoming more and more prevalent — with each week resulting in more job loss or startup shut downs. As per a recent study by DataLabs by Inc42+, the average percentage of layoffs in the total workforce in Indian startups is 22%. Pay cuts and downsizing measures are usually taken when the outlook is bad, but this is perhaps worse than any other bleak scenarios.
With VC funding narrowing significantly and greater demand for EBITDA positive businesses even in a crisis, the Indian startup ecosystem has abandoned the long-held cash-burn approach for a more financially sustainable strategy. But the question remains, how many startups are actually going to survive this transition?
Out of all the gloom-ridden predictions about the future of the Indian startups, one that horrifies the most is — startup shutdowns. This not only curtails the innovation engine but ends up causing VC losses, which damages the faith and the confidence in the startup ecosystem. During the peak of the dotcom bubble, for instance, VC funding in the US startups had reached a record high of $66.4 Bn (2000) but by 2002 when the bubble was about to burst, the total annual capital inflow fell to below $20 Bn and remained the same for the next 11 years.