Startups hit as investors get extra cautious

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SME Times News Bureau | 01 Apr, 2020
Amid uncertainty in the business climate due to the COVID-19 pandemic, young startups in India are finding it hard to draw the much required funding even as investors become extra cautious, industry insiders said on Wednesday.

What is even more worrying is that nobody knows for sure when exactly would the business climate in India return to normal.

"Seed funding has witnessed decline across categories mostly those into consumer facing sectors -- travel, tourism, retail, restaurants and events," Apoorva Rajan Sharma, Co-Founder & President, Venture Catalysts, an incubator for startups, told IANS.

"These are the sectors that are likely to be hit the most since consumers are likely to hold onto their spends for at least 2-3 months now on the back of a deteriorating global economy that is likely to impact jobs and overall spends," Sharma said, adding that no one can predict when the situation is likely to stabilise.

India is currently under a 21-day lockdown till April 14.

Noida-based Madhvi Sharma who works for a lifestyle startup from home has been asked to now work for 4 hours from April 1, instead of earlier 8-hour, 5-day shift. Reason: Funding is frozen.

According to Chandrashekar Kini, Director of Bengaluru-based Relex Healthcare Services, startups are finding it hard to effectively demonstrate their business models on play due to the lockdown.

It has also affected their ability to effectively connect with investors who fund early stage startups in terms of availability of concerned people to evaluate.

There is "negative/defensive sentiments among investors oriented towards early stage start-ups. They will have their own concerns on the status of their investments where they have parked investible funds given severe erosion in stock market indicators and the fall out of such erosion in different areas," Kini told IANS.

At the current early stages of lockdown, there is a general and broad-based disruption in the investment processes for startups seeking early-stage funding.

"However, as the lockdown settles in, investors would have concerns about models that either did not show resilience in a lockdown situation," he said.

According to him, a few core sectors with greater relevance and resilience are starting to receive greater attention -- online retail, healthcare, health-tech, EdTech, etc.

"Startups in other peripheral sectors related to discretionary spending are likely to find the going slow," he said.

The general economy is likely to start showing signs of getting back on its feet in the last quarter of 2020, Kini noted, adding that the broader investment climate for startups is likely to be more supportive in the first quarter of calendar year 2021.

However, even during these challenging times, some young startups have managed to impress investors.

"The current situation is affecting the economic activity of startups, which is definitely expected to elongate funding cycles of seed stage companies. However, most early stage VCs we are interacting with continue to be open to new investments," said Esha Tiwary, General Manager-India at Entrepreneur First which is a leading UK-based global talent investor.

"For example, Entrepreneur First India held an Online Demo Day for our second cohort of startups yesterday, and we already have over 100 investor office hours set up remotely over the next few days," Tiwary informed.

The Demo Day unveiled five deep tech startups using cutting-edge technologies such as Artificial Intelligence (AI), Internet of Things (IoT), robotics and computer vision.

The startups include Healium Digital Healthcare, Real Analytics, Recreate AI, Unbox Robotics and QZense.

"All of our startups are gearing up for the next 2-3 months to be challenging. We will see a new normal emerging in the next 2-3 months and budding entrepreneurs, as well as existing startups, can take advantage of that," Tiwary said.