Entrepreneurship and the pandemic

Hundreds of thousands of small and medium businesses shut down across the country last year due to the impact of the once-ina-century pandemic. Millions of jobs and livelihoods were lost as a result. Start-up funding was down, and credit offtake dried up in the wake of sustained lockdowns and demand slowdown.

Surely, the entrepreneurial spirit was dented big time during the early months of a Black Swan event in Covid-19. Though business for majority of entrepreneurs is yet to return to pre-covid levels, has the country’s indomitable entrepreneurial spirit gotten over the Covid bump? We cannot say anything one-way or the other as these things play out over a relatively long period, but on balance, it looks like a glass half-full picture.

Government data from the Ministry of Corporate Affairs shows the number of new companies registered between April and December last year grew 21 per cent compared to 2019. Even taking into account the hundreds of firms that were forced to shut down due to Covid-related financial stress, the count of active companies rose to over 1.31 million at the end of 2020, a jump of around 130,000 compared to December 2019. Newly incorporated firms even doubled their authorised capital to ~5,200 crore a month for nine months ending December 2020, compared to April-december 2019. Part of the reason for this spurt could be easier incorporation rules, as some reports point out, but surely, that alone cannot explain why entrepreneurs are putting new firms on the ground with such alacrity.

Though start-ups collected less money last year, down almost a tenth to just over $11 billion compared to 2019, according to a report by industry tracker Inc42, the number of deals were up 14 per cent to 924, led by a strong recovery in the second half. And what is encouraging is that early-stage investments boomed, accounting for over half of all deals last year. Micro venture capital — typically fund size under $30 million — flow was up almost 8 per cent to start-up fledglings—firms still grappling with business model, product-market fit issues — in sunrise sectors like software-as-service, artificial intelligence and life sciences. Even though big-ticket deal, over $100 million, came down by 15 per cent in 2020, earlystage funding to start-ups almost doubled to $624 million in 2020, compared to 2019, according to Inc42 analysis. To boot, 11 startups became unicorns — firms with over a billion-dollar valuation — in 2020, the most in a calendar year. Start-up funding is slated to be on fire this year, and is expected to go up by 50 per cent compared to 2020 and 25 per cent jump from 2019.

Even the hardest hit micro, small and medium enterprises (MSMES) seem to be turning the corner with credit growth at pre-pandemic levels of around six per cent to ~19 trillion as of September 2020, according to a report by Transunion CIBIL. True, there is stress still lingering on with expectation of fresh bad loans surfacing in the MSME sector once the Supreme Court-mandated moratorium is lifted, the healthy credit offtake nonetheless points to welcome economic recovery and to entrepreneurial spirit alive and kicking in the sector, that directly or indirectly employs tens of millions of people.

Companies are making a beeline for initial public offers this year, and expected to raise a record over ~1 trillion, not counting the proceeds from government-run firms such as LIC and others.

And it is not just company/credit/fund-raising data that point to a healthy entrepreneurial spirit amongst Indian citizens. Even entrepreneurial intentions seem to have come out relatively unscathed from, hopefully, the worst of the Covidrelated period of last year or so. In a global survey by French research firm Ipsos—entrepreneurialism In the Time of the Pandemic—released last month, Indians emerge at the top on intention to start a business in the next two years at around 77 per cent, compared to any other big economy like China (28 per cent) and US (16 per cent). And what’s more heartening is that this number is higher now, by 8 percentage points, compared to pre-covid levels in India, even as it dipped hugely across other big economies in China (-21 per cent) and US (-1 per cent). And what should be gratifying to the government, a majority of Indians (54 per cent) polled in the Ipsos survey say that the establishment is doing a good job in actively assisting entrepreneurs, again the highest score amongst 28 countries covered in the report. There has even been a post-covid improvement in the perceived government performance here, rise of 8 percentage points in India.

A Bain & Company research late last year amongst women-led single-person and small business owners shows how Indian entrepreneurs remain not just optimistic of the tide turning for the better (90 per cent believe they will survive the crisis), but also of the enterprise and agility to adapt, with around 80 per cent of all surveyed saying they already have or will soon change their business model in response to Covid-19. It is truly Atmanirbhar Bharat for the Indian entrepreneur.