India’s Startup Ecosystem Needs Innovation Redirection and Collaboration

India’s startup ecosystem is facing a threat that will be difficult to recover from in the coming year or more. How will India’s startup environment fare in a post-COVID-19 scenario? As one section of India’s startup scene wobbles, can those that are surging help keep a relatively balanced progress?

Can startups facing difficult times pivot their skills and assets towards prosperous directions to see them through the current crisis?

The repercussions of the ongoing lockdown are beginning to show in India’s startup environment in the form of pay cuts, layoffs, lack of funds, and low morale. According to Nasscom, nine out of ten startups have declining revenues and more than a third might be coming to a complete stop, with early and mid-stage businesses in the Business-to-Consumer (B2C) space worst hit.

At the same time, certain industries are suddenly seeing unprecedented surges in business. For example, edtech, healthcare, and ecommerce. Can startups facing difficult times pivot their skills and assets towards prosperous directions to see them through the current crisis?

Layoffs and Pay Cuts

Industries like foodtech, cab hailing, and hotels are bearing the brunt of the first impact of COVID-19. Last month, contraction of business has forced Uber India and South Asia, Ola, Zomato, Swiggy and Cure.fit to cut 4,441 jobs. The list of startups that are being forced to announce pay cuts and layoffs include rising stars of the likes of Paytm, FabHotels, Instamojo, Makemytrip, and Droom.

Any jobs that require human contact are in the line of fire. If people can avoid a service that requires human contact, they will.

Funding Woes

Funding environment is also projected to suffer in the coming year, with agritech and fintech startups faring the worst. A group of equity and venture capitalist firms of global repute have addressed an open letter to the startup founders of India warning of uncomfortable times ahead in terms of fundraising.

The letter, which includes names such as Accel, Kalaari Capital, Lightspeed, Matrix Partners India, Nexus Venture Partners, and Sequoia Capital India, envisages,

“Valuation multiples will be reset. This is because many investors perceive there is much more macro risk today and public markets are now valuing companies differently than a few weeks ago.”

“It’s more important to optimize for company runway than valuation at this point.”

And,

“A “flat round” that extends your runway to at least 12 months is a good outcome in these times.”

What is emerging is just the beginning. If a month’s lockdown can cause so much trouble, the future of certain industries in the coming year looks pretty grim. As runway cash of startups runs out in a few months, the situation will become even worse.

A Ray of Hope: Businesses That Are Surging

At the same time though, some sectors are bound to pick up business as social distancing and lockdown are creating the need for certain services more than others. Logistics might have taken a hit, but deliveries are in full swing as small shops are scrambling to keep themselves stocked for daily grocery demands.

Digital entertainment is surging as a socially-distanced population turns to their smart devices while sitting at home unable to go out and enjoy a cricket match or a movie. Esports and online gaming are on the rise.

Read more: Rise of the Robots: COVID-19 is Causing a Hesitant India to Welcome Automation

Communication apps are a necessity for constant communication between relatives and friends, offices and employees, educational institutions and students. Video conferencing platforms like Say Namaste, Floor, and KL Meet, are garnering huge numbers. Online dating apps like Happn, Truly Madly, OkCupid, and Filter Off are seeing an incredible rise in users.

People forbidden from going out shopping turn to ecommerce to fulfil their purchasing needs. Ecommerce is projected to reach INR 7 trillion by 2023. Startups like BasicFirst, Dream Sports, FarEye, Licious, Myntra, Milk Mantra, Vedantu, HouseJoy, Zivame and BharatPe have gone on a hiring spree.

With these businesses on the rise, startups that are not faring well must think of redirections, innovations, and collaborations to keep the startup environment afloat.

Collaborations

As demands in certain industries increase and others go down, small players with a common interest can help each other out. Such collaborations are already happening.

B2B ecommerce startups such as Jumbotail and Udaan are partnering with local kiranas to keep them well stocked. In fact, digitizing of local kiranas has been profitable for both kiranas and wholesalers.

As demands in certain industries increase and others go down, small players with a common interest can help each other out

Scooter rental startup Bounce is exploring new ownership models by tying up with Bangalore-based electric scooter startup Ather Energy. Customers buying an Ather 450 on the Bounce website can rent or lease it out on Bounce.

Both Udaan and Bounce have had to lay off staff in order to conserve capital, while Bounce founders were forced to take a 100% pay cut.

Innovations

There was never a better time for India to adopt technology. Robotics, AI, ML, IoT, blockchain, and general digitization are technologies well-equipped to provide businesses with a boost in a better direction.

There was never a better time for India to adopt technology

Businesses will likely change direction towards digital services. Industries like travel and hospitality must rely more heavily on technology to provide contact-less services. As the market reopens, consumers need assurance of clinically hygienic services. Design-level changes in future structures of hotels, airports, and airlines are worth considering.

OYO Hotels and Homes are already revamping their processes in a programme called ‘Sanitised Stay’ t ensure hygiene. OYO Founder Ritesh Agarwal will be forgoing his salary for the year 2020.

Government Relief

From the government, relief in the form of funding support and relaxed compliances will be a help.

Debjani Ghosh, President of Nasscom told ET, “To ensure that the Indian startup movement and its growth trajectory is not derailed, coordinated support from key stakeholders is the need of the hour,” said. “Some of our key recommendations to the government include access to working capital, easing compliances and fiscal policy and funding support.”

As demands in certain industries increase and others go down, small players with a common interest can help each other out

Going by the union budget for financial year 2021, startups are not at all ignored. They were thankful for infrastructure boosts and eased tax burdens. It goes to show that the government will protect its investment in the startup ecosystem.

Redirection

Entities with digital skills can redirect their talents to sectors that are picking up, like digitised entertainment (streaming, gaming), edtech, connectivity and communication solutions, telemedicine, and on-demand delivery. In short, it’s time for many startups and businesses to pivot.

As the Nasscom survey states, 54% of respondents in the survey said they were looking to pivot their businesses. Letting in technology, such as AI, blockchain, and IoT into industries like healthcare, education, financial services, hospitality, and even cooking can give startups a chance to grow in another way.

It’s time for many startups and businesses to pivot

Increasing ecommerce can give dwindling logistics and cab hailing startups a chance to pivot their business in a profitable direction. Already such redirections are occurring. For instance, Swiggy and Zomato, deliverers of cooked food, are now foraying into the grocery delivery segment, making use of their fleet of riders in many cities in India. Swiggy has even launched Swiggy Genie as competition against Dunzo’s pick-up and drop-off.

Keep the Faith

A cash-strapped year of such uncertainty will have an impact that will take years to recover from. As the thought sends chills down the spine, will startups still retain the vibe of an exciting and glamorous place to work for?

Read more: The Lockdown is a Chance for Indian Education to Go Digital

India’s view of its startups is that of youthful ideas driven by a spirit of innovation. In these trying times, we want to bank on their resilience, grit, and vision. We have to keep the faith and trust the ecosystem to renovate and rise.