About 75pc Indian startups are gradually recovering to pre-COVID levels, says report

The Tie Delhi-NCR chapter on Wednesday in a report revealed that the Indian startups are now getting back to the pre-COVID levels, on the back of various factors such as their resilience, technology, ecosystem's support, and innovation.

The report titled, 'COVID-19 and the Antifragility of Indian Startup Ecosystem,’ released on Wednesday by TiE Delhi-NCR in partnership with Zinnov, highlighted that as the economy reopened, with a shift in digital consumption — both in demand and in investor sentiment — the recovery has been faster than expected.

It said, about 75 percent of startups are gradually, but steadily recovering post the lockdown. Around 30 percent of startups have pivoted to newer markets for alternative revenue streams, while over 55 percent of startups are focusing on profitability and reducing cash burn.

There was a dip in overall funding by 50 percent during the lockdown as compared to pre-COVID levels. In fact, around 40 percent of startups were negatively impacted, and 15 percent of Indian startups were forced to discontinue operations due to COVID-19, the report highlighted.

However, 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, it said.

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Interestingly, four Indian startups have become unicorns amidst COVID-19, and India is on track to have eight unicorns in 2020 – almost the same number of additions as in 2019. Startups, including Nykaa, Unacademy, Zerodha, Razorpay, and Postman entered the unicorn club amidst the pandemic.

“The brave response of entrepreneurs and the ecosystem as a whole, to the uncertainty brought on by the pandemic, by adopting new business models in line with the evolving customer needs and market conditions exemplifies the antifragility of the ecosystem,” the report added.

Speaking at the launch event, Rajan Anandan, President, TiE Delhi-NCR, said, “Digitally-led segments have recovered much faster than anyone expected, and in many spaces, demand is well ahead of pre-COVID levels. Investor sentiment has also recovered quickly, and we expect the Indian unicorn club to steadily expand through 2020 and 2021. Although COVID-19 has been a major setback for the ecosystem, we believe that the changes that the pandemic has brought on will make our ecosystem much stronger, across every dimension. India is on a path to have 100 unicorns by 2025.”

The report further elaborates on the steps taken by entrepreneurs to reinvent their business models to minimise the impact of COVID-19, including 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 percent of Q1 (pre-COVID) levels, investor sentiments becoming positive, ticket sizes increasing of seed investments to $800 per deal from $400 earlier, number of startups raising their first investment round also reverting to Q1 (pre-COVID) levels – ensuring that the startup ecosystem bounced back, with an expectation of becoming healthier and more vibrant in the future.

“In the initial days, the startups reduced cash burn and redeployed existing capabilities to focus on tiding over the uncertainty. But, the shift to digital consumption certainly provided an opportunity. By being nimble and rapidly responding to different challenges, looking at them as an opportunity, the Indian startup ecosystem has displayed its antifragile nature. Despite the trying times, and the death of many startups, the ecosystem has played a key role in employment generation, and is expected to create 15-16 lakh direct jobs by 2025," said Pari Natarajan, CEO, Zinnov.

The report pointed out that the Indian startup ecosystem is expected to have 7-7.5 lakh direct jobs and 26-28 lakh indirect jobs by the end of 2020, further cementing its recovery.

Anil Agrawal, Joint Secretary, Department for Promotion of Industry and Internal Trade (DPIIT), Government of India, urged the startup ecosystem and investors to think and leverage huge potential in India, riding on the Aatmanirbhar Bharat bandwagon.

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He said, “ As the Government of India lay downs the Bharatnet project, bringing all the rural population online in the next two years, startups must think that all those people will need delivery of content, delivery services, education, health services and more, everything is in their own language.” He said that India has enough opportunities, and startups must think if they are concentrating on Aatmanirbhar Bharat (self-reliant India).

The report is also supported by Cisco Launchpad, NetApp Excellerator, and Lowe’s Innovation Labs, and interviewed 100 Indian startups, not more than 10-years-old.