Indian startups get creative as funding dries up
Samik Sarkar was managing to eke a profit out of Rustorange, his online apparel store, before the coronavirus crisis hit India, forcing the 36-year-old to reinvent his business overnight.
“I started selling masks because that’s all I could sell,” he said. “I have salaries to pay.”
The rapid global economic slowdown, India’s coronavirus lockdown of 1.3 billion people and an exodus of venture capital are testing a startup community that has quickly become one of the world’s biggest, raising a record US$14.9 billion last year.
The success of the Indian e-tailer Flipkart, sold for $16 billion to Walmart in 2018, helped draw in billions of dollars in funding from global venture capital firms, while American and Chinese tech giants stalked promising prospects.
But in just a few months much of that cash has vanished, with venture capital and private equity investment in India expected to fall by 45-60% this year, Ernst & Young estimates.
A group of the top venture-capital firms, including the US groups Sequoia and Accel, warned startups this month that it will be “very difficult” to raise financing anytime soon.
Five venture capitalists told Reuters that only a few of the best companies from their existing portfolios would be able to get further funding, while most new ventures will likely be locked out for the foreseeable future.
This rapid turnaround has left scores of Indian startups which had been plotting expansion and fundraising considering anything and everything to keep themselves from going under.
Data from Tracxn, which monitors startup investments and financials, shows there were 1,406 funded startups in India in 2019, compared with 351 in 2008.
“When you look at pre-Covid business models, half of them will not survive post-Covid,” said Sudhir Sethi, founder and chairman of the Bengaluru-based venture capital firm Chiratae Ventures.
The funding freeze has been compounded by India’s move in April to step up scrutiny of investments from overseas, a move seen by some analysts as a thinly disguised deterrent to takeovers by Chinese companies, which have been big investors in India’s tech industry.
And with SoftBank, another major funder of Indian startups, facing setbacks elsewhere, there is little relief expected from the Japanese technology backer.
This leaves investors and startups with few alternatives but to focus on pursuing profitability and reducing cash burn, said Sid Talwar, partner at Mumbai-based Lightbox Ventures.
“For Indian companies, if SoftBank does not write big cheques and Chinese pools of capital slow down, it will further accelerate that thinking,” Talwar told Reuters.
“I started selling masks because that’s all I could sell. I have salaries to pay”
Startup founders contacted by Reuters said they had enough cash for a couple of months at the most.
“We had big expansion plans just before this hit,” said Sujata Biswas, who co-founded the Mumbai-based online clothing brand Suta with her sister Taniya.
“All of that has stopped. … It was a big shock.”
Suta, which saw sales triple for three years before the lockdown stopped all business, would be unable to stay afloat for more than six weeks without a cash infusion, she said.
Cure.fit, a Bengaluru-based fitness firm that had to shut its gyms and health clinics around India, slashed salaries and laid off about 800 people in recent weeks.
It is now trying to get by by offering virtual yoga classes and home-delivering groceries as Indians stay indoors during the lockdown.
BookMyShow, an online ticket seller, is promoting free-to-watch Instagram Live performances in an effort to keep its users engaged, while the restaurant aggregator and food delivery firm Zomato is targeting a push into alcohol delivery.
Others such as the meal delivery firm Swiggy and the hotel operators Oyo and Treebo have shed employees, cut
salaries and put workers on furlough, sources at the companies told Reuters.
Apparel retailer Sarkar said he expected Rustorange to see a 50% slump in demand from pre-virus levels even after the lockdown is lifted.
With nearly 40 full-time staff and about 70 part-time workers, he only has enough cash for “a month or two”. To survive, Sarkar is drawing on his experience of a 2016 funding crunch, which brought down his previous firm.
“We are now trying to think of ways that can be appealing in the new normal,” Sarkar said. “We are thinking of developing masks as a fashion accessory.”
Rustorange founder SAMIK SARKAR