Evolving Landscape of Funding During the COVID-19 Pandemic
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COVID-19 pandemic along with the health emergency has brought with it many struggles for India’s startups and small and medium enterprises (SMEs). Since the starting of the lockdown in the last week of March, startups and SMEs have seen a drastic fall in revenues and have been struggling to make ends meet. Some of the well-funded startups in the country have announced layoffs and furloughs, and have been scampering to reduce cash burns in the race for survival.
Federal Bank managing director & chief executive officer Shyam Srinivasan and Blume Ventures co-founder and managing partner Sanjay Nath during a webinar organized by Entrepreneur India discussed how SMEs and startups, among others, are being evaluated especially during the COVID-19 pandemic.
Resources for startups and small businesses during COVID-19
The COVID-19 crisis offers a new opportunity to accelerate the application of the Indian government’s multi-stakeholder model and system leadership to support its entrepreneurial ecosystems and build resilience as well as economic recovery through the crisis.
Srinivasan believes, “The stimulation of demand is a function of ability and confidence of people and the belief that the next 6-12 months of life will now come back to some sort of rhythm and order, giving some kind of credit lines and liquidity support. Then there are those who have some sort of borrowings, have got temporary relief of a moratorium or an ability to spread their payments over time.”
There are relevant opportunities for startups during the crisis
Notwithstanding the significant economic disruption caused by the COVID-19 crisis, long-term effects on employment and innovation may be mitigated by taking steps now to support existing startups and the creation of new firms, limiting the negative effects discussed in the previous section. Recessions are often times of heightened restructuring that may ultimately lead to a stronger and more resilient economy.
Even as the number of new business registrations generally drops during recessions, many successful innovative start-ups or businesses have emerged from periods of crisis. Examples include Uber, Airbnb, WhatsApp and Pinterest, which were all founded during or just after the global financial crisis.
This confirms that periods of crisis are not only a challenge, but also provide new opportunities for entrepreneurs, as start-ups can help address the constraints created by difficult health or economic conditions, and respond to changing preferences and needs.
Nath added, “My message for founders and entrepreneurs is one to make sure that they have enough cash to write out the storm, extend your runway if you need 6 months in normal times, today you need 12 months of cash. The second point is to reduce your customer churn and really focus on keeping your existing customers because getting new customers is getting difficult by the day. So, it’s really up to deliver value to the existing customers. At the same time, there is a silver lining as there’s a famous saying that never let a crisis go to waste. Customer and enterprise behavior is going to change. If you have the money, it’s a great time to start a company because you can start with a clean slate and my third point of advice would be to cut all your non-essentials and then look for those shifts in the tailwind sectors in your enterprise and customers. It’s a very tough time, there’s a lot of pain but it’s almost like a reset so the new world order is going to be very different.”