Do we all know that the Indian startup ecosystem is facing its biggest encounter of this year due to the COVID-19 crisis? A recent survey has revealed that 70 percent of startups have less than three months of cash runway and 40 percent of startups have either temporarily shut down operations or are on the verge of shutting down.
Such economic activity of our country regarding the startup ecosystem and businesses will face fragmentary downfall over the next year as the country switches to a post-COVID-19 world.
The main reason for such fiasco in Indian startups is due to the lack of funding. This has jammed the startups across diverse sectors as well.
“Funding shortage is being felt by most startups and can affect long-term sustainability,” says a recent report on the economic status of budding startups. The lock-down has not only impacted the daily business operations, but it has also forced good-many start-ups into preparing for likelihood plans to limit the workforce and to cut down employee salaries. Various start-up founders have also taken pay-cuts to limit the losses faced.
To improve this condition and lift up some startups from the numerous financial and operational challenges, the Small Industries Development Bank of India (“SIDBI”), which also operates as employing support for the ‘Fund of Funds’ for start-ups, has publicized a ‘COVID-19 Start-up Assistance Scheme’ which is envisioned to provide assistance to certain eligible start-ups that many of us are not aware of.
The current global scale pandemic displays that there is a strong probability that fundraising for start-ups would become a significant challenge in the future, since various investors may choose to focus their future fund dispositions only on the existing portfolio companies, in order to ensure that they are able to tide over the present global crisis and avoiding to fund on the novel and budding startups.
As mentioned above the Start-ups are likely to witness profound consultations before wanting to fund from the investors which may result in possible delays in the fixation of funding and executing the startup progression.
But from a different point of view, those profound consultations can make the Investors implement a more vigilant approach towards funding so that it becomes easier to test if the startups are viable enough in the longer-run.