COVID-19 Effect: 38 pc of Startups Have Run Out of Cash, Reveals Survey

India took a bold decision to implement one of the most strict lockdowns in the world to prevent the spread of the virus causing COVID-19. Experts wondered how this will impact the Indian economy and its startup ecosystem in the short to middle term. Startups generally do not sit on huge cash reserves to sail them through these tough times when economic activities in the countries almost stopped for nearly three months.

They seem to be in a bad shape at the moment due to the economic impact of COVID-19 and a survey points out that 38 percent of them have already run out of cash, and another 30 percent have money left for a maximum of three months.

LocalCircles, a community social media platform, in a survey which could gather an impressive 28,000 responses from startups, small & medium enterprises (SMEs), and entrepreneurs across the country reveals that even though Unlock 1.0 was announced to lift restrictions, the situation on the ground has not really changed much when compared to during the lockdown period.

The survey pointed out that only 16 percent of the startups have three to six months of cash left and 12 percent with less than a month. In fact, 4 percent of these startups have already shut down.

“The comparison from April to June 2020, shows that percentage of startups and SMEs out of funds has risen from 27 percent to 42 percent, showing a worrisome situation,” the survey from LocalCircles said.

The nationwide lockdown that started on March 25 has had a severe impact on the economy and more so for the startup as the overall economic activity almost came to a complete halt. In fact, the unlocking is being undertaken gradually, revealing that the pain is expected to stay for more time.

In order to prepare themselves for the new environment, over 64 percent of the startups have brought down costs in areas such as marketing, human resources, fixed operations, and deferring of tax payments, according to the survey.

All these steps are being initiated by the startups to sustain themselves. However, there is a silver lining amid this gloom as 35 percent of the startups expect to register growth in the next six months, though an equal percentage of them are expected to scale down their operations.

“Many companies have been trying to raise funds in the last few months but have not been able to do so due to the reduced interest of investors and liquidity drying up,” the survey of LocalCircles said.

On the various incentives announced by the government under the Aatmanirbhar Bharat stimulus package and how it benefits the startups, the survey pointed out 57 percent of them are of the view these steps are unlikely to benefit them.