Small Indian startups have run out of funds minus a specific government bailout package, two months after their businesses took a hit because of the Covid-19 pandemic induced lockdown.
About 38% of startups and small and medium enterprises have run dry, from 27% in April, a survey by community platform LocalCircles showed. Around 4% of startups have already reported that they have shut down.
Most small businesses and startups never raise external funds, making the cash crunch a knotty problem as investors cannot step in to extend their cash runway.
The number of businesses with 3-6 months of cash runway has come down to 16% currently from 23% one week into the lockdown in April, as per the survey.
The survey received 28,000 responses from 8,400 startups, SMEs and entrepreneurs.
“Multiple calls to the government to facilitate bailout of startups have remained unanswered,” said a venture capitalist who has conveyed the demands of startup to the government.
“Making it easier for MSMEs to get loans was great for them, but not startups who banks do not lend to,” the person said on condition of anonymity. “It’s perplexing that the government doesn’t want to support startups that can create jobs which is the biggest requirement right now.”
To be sure, startups have continued to get funding through the lockdown, but the virus outbreak has caused it to slow down.
According to data sourced from startup data collector Tracxn, only 79 seed stage deals amounting to $47 million were closed between the start of April and June 5, compared to 188 deals worth $154.5 million raised by companies between April and June last year.
Even the number of Series A deals closed in the April-June quarter so far stands at just 36 compared to 103 in the corresponding quarter the previous year.
The total amount raised in Series A deals in the same period is also less than half compared to last year, at $238.5 million.
Although there are some deals in the pipeline that have yet to be announced before the end of this month, it is unlikely that funding in the April-June quarter this year will exceed last year’s target.
Nikunj Bubna, co-founder and CEO of TheWowBox, a startup that helps FMCG companies market and sample new products to consumers, has recorded zero revenue since the lockdown.
“We had been working on our pre-Series A funding deal since December last year and now that’s on hold. Our clients are FMCG companies, and large players in this space have deferred new launches, smaller players have cut their budgets, so we’ve had zero revenues,” he said.
In the LocalCircles survey, when asked where startups and SMEs expect to see their businesses over the next six months, 35% of respondents said they expected growth, while another 35% said they would scale down their businesses and 14% responded that they would shut down.
Moreover, only 14% of businesses that participated in the survey said the government’s Atmanirbhar Bharat (Self-reliant India) stimulus package had benefited them, with 57% saying it had no effect on their businesses.