Coronavirus outbreak: Start-up heads predict mayhem in six months

A Mumbai-based entrepreneur, who runs a consumer products and marketing firm, had committed to fund a wedding in his family. But little did he anticipate a pandemic was looming, which will turn everything upside down.

After the Covid-19 outbreak, he is on the verge of closing down the company, as the venture capital (VC) firm investing in his start-up has backed out and most of the clients have cancelled contracts.

“I even put up some of my property on sale, but who would buy it at this time?” the founder, who is now facing pressure from his staff to pay salaries, rued.

The only disruption for thousands of start-ups in the country till now was limited to to pay cuts, salary freeze and layoffs, but the scene will be different in six months.

According to a survey by community platform LocalCircles, about 47 per cent of Indian start-ups and small businesses have less than one month of cash left with them while many are out of funds already. Almost 74 per cent of the start-ups are expecting to shut down or scale down their businesses over the next six months, according to the survey, which received around 13,970 responses from start-ups and small businesses located in over 90 districts across the country.

“We received inputs from many VCs and entrepreneurs who said that the next six months will be critical for the Indian start-up ecosystem and thousands of people will face layoffs or salary cuts,” Sachin Taparia, founder and chairman of LocalCircles, said. “We are already seeing the shades of this with leading unicorn companies and well-funded firms laying off hundreds of people, announcing salary cuts, reducing marketing budgets, and putting the expansion plans on hold.”

This is because VC firms, the primary driver of investments into the start-up ecosystem, have been dependent on foreign sources. “But now, what is going to happen is that because other (regions) such as the US, China, and Europe have their own problems, they would direct their capital internally. Foreign capital is likely to evaporate in 2-3 years,” said Rehan Yar Khan, managing partner at Orios Venture Partners. “The question is, when they (start-ups and unicorns) go to raise new funds, would foreign investors give them the money again? There is a large need to have a (vibrant) domestic venture capital ecosystem, which is extremely shallow at the moment,” said Khan, who is also part of the executive committee of Indian Venture Capital Association.

Some entrepreneurs and VCs said though revenue for companies catering to essential goods would remain healthy, those in sectors such as travel, tourism and hospitality, are expected to witness 80-70 per cent revenue loss in six months. Tech companies like Swiggy and Zomato have launched grocery delivery services to cope up with losses in revenue. Many other firms are trying different things, too.

Swiggy is learnt to be cutting about 1,000 jobs, most from its cloud kitchen division. When contacted, the firm said it was evaluating various means to stay nimble and focus on growth and profitability. These include, renegotiating contracts with landlords, relocation of certain kitchens and discontinuing operations at a few kitchens that have been severely impacted since the lockdown came into effect. “The hospitality industry has come under severe pressure. This will, unfortunately, have an impact on a certain number of kitchen staff, who will be fully supported during this transition,” a Swiggy spokesperson said.

SoftBank-backed Oyo Hotel and Homes has asked all its employees to take a 25 per cent pay cut between April and July. It has also told some staff members to take leave with limited benefits or go on furlough for a period of four months (between May 4 and end of August). The number of employees being asked to take this furlough is likely to be over 3,500.

Well-funded companies such as Shuttl, Fab Hotels, Instamojo, Bounce, Blackbuck, Udaan, BookMyShow, and Curefit, among many others, are also going for salary deductions and layoffs. “I have not been taking any salary and most of the employees have voluntarily taken a 50 per cent salary cut. Also, about half of our staff have gone back to their hometowns,” said a founder of a consumer internet company.

“I think during and after Coronavirus, the companies which would still hire people would be the Amazons and Flipkarts of the world,” said Kris Lakshmikanth, founder chairman and chief executive, Head Hunters India.