Impact on Start-ups Business amidst Coronavirus (COVID- 19)

Ramanan Murali

21 Nov, 2020

Introduction

The novel coronavirus (COVID-19) represents a global pandemic; witnessing possibly a once-in-a-lifetime event, and has tested the health care system utmost to their potential. It is also creating a negative impact by cutting down the economy with a shock of massive proportion. Further, focusing on the current news, the Prime Minister of India has announced a lockdown for 21 days extending up to 14^th of April 2020 to break the chain of the virus.

Amid lockdown, we see constant fluctuations in the Stock Market, leading to trigger ample circuit breakers on Sensex and Nifty. The stock market has witnessed one of the worst crashes over the last century, and the investors are losing money by each passing day which is creating a panic like situation.

Startups and Funding Struggles due to Coronavirus COVID-19

The impact of coronavirus is the most on startup businesses as they are being tested and tried out of this situation. The brilliant business ideas which were aiming to get its operations up and running are in search of seed funding. The seed funders are shying away from any new investments seeing the weak market conditions over the past two months. Further, the interested venture capitalists who are ready to fund the ideas (particularly those with views seen as genuinely revolutionary or those attached to individuals with a proven track record of success) are also finding it tough due to the large communication gap; created out of the lockdown and they are not able to discuss their business strategies widely.

The Venture Capitalists and Private Equity Funders are issuing cautionary advice to their portfolio companies. They have advised to save their cash and reach the break-even without utilizing their abundant resources as the coming times will be tough and brace for a possible uncertain fund-raising environment.

After heading much of the risk capital market’s hyper-growth in recent years, venture capitalists are poised for a decisive assay of their zeal for funding startups. Heading into 2020, it wasn’t irrational to predict another record year for VC financing involving corporate risk capital arms.

But that was before the coronavirus outbreak brought the world economy to a deadlock. And now turmoil spurred by the global health emergency has given rise to an alternative for business decision-makers. The Coronavirus (COVID 19) impacted big ventures real-time as their managements have decided to freeze any new hiring and defers in hikes and bonuses.

Dependency on China for Imports

India’s startups and mediocre ventures’ reliance on China Imports is spread across the sectors. The dependence on China has decreased, though only slightly, over the last five years. The significant dependency of importing the small tech-based product and assembling the same in India is helping to boost their environs. Investments and Ideas shared by the Chinese companies are helping boost the local ecosystem.

The Indian pharma industry is most vulnerable to Chinese imports to manufacture the medicines — the APIs (active pharma ingredients) come from China. The active smartphone market is also gained as one of the most significant imports tags. The Indian founders of electronic gadgets are facing a sharp decline in their business as most of their imports of electronic parts which later used to get assembled in India were from China which used to be cost-effective.

While China will start its business operations in the coming time, the experiences of Chinese firms and entrepreneurs can help as an allusion for the businessman in India, where daily cases of the coronavirus are still swiftly increasing. The Indian Ventures should take note of the same and plan their business model for the next coming quarter more vigorously and shape their team, which will instead pick up once this pandemic situation gets cleared.

Chief Economic Advisor Krishnamurthy Subramanian, spotted a rigorous opportunity of developing the ecosystem with the help of self-dependency, said the coronavirus outbreak in China provides an opportunity for India to expand exports.

“It’s tough to say how this will manifest in terms of India’s trade relations with China. If we go by the experience of SARS (outbreak), India was not affected that much,” he said. Complexities in the Indian manufacturing ecosystem make it difficult for India to quickly take advantage of the disruption in global trade. However, good tidings have been emanating from India’s high-tech factories in recent years.

Also, Read: Business Impact of Coronavirus on Indian and Global Economy.

Survival strategy for Startups during the impact of Coronavirus (COVID-19)

· Bolster your Business Model and Resources

The Management needs to revise its operating plans for more conservative than necessary. Earlier, the resources were also kept as a backup, but now startups cannot afford to do the same.

· Burn Rate and Break-Even Point

Check the amount of cash flow and if a startup is making more revenue than its spending or vice versa. These times, business ventures have to do smart spending. Spend wherever necessary and maintaining the liquidity should be the foremost option. Reassess the account and check for cut downs to increase the cash reserve.

· Venture Capital Investors

Access to the capital is one of the critical areas for survival during this pandemic. Investors will not be willing to invest further as the market is crashing already, but the startups need to assure the funds with their great backing ideas. The big startups will majorly depend on hedge funds, investment banks, private equity firms, Startups who have already acquired seed funding and Series A funding further will be looking for Series B and C. For next few months the market won’t respond properly and the deals with the VC will not get converted easily, and their valuations will take a negative hit. However, there are few investors who believe investing in the bear market and deal for good returns in the future profit scale. This is the time to recognize the right investor and pitch your unique ideas.

Over the past few months, the startup’s customer base is beginning to decline amid the coronavirus. Most of the small and mediocre ventures are working remotely to utilize their full potential and gaining a good out of this pandemic situation.

Government aid to Impact on Business due to Coronavirus (COVID-19)

The Government of India has always been supportive of the Start-up business and encouraged them with their policies like the ease of doing business and start-up India. But due to the certain contingencies like coronavirus (COVID-19) has put a negative impact on the economy as well on the business ventures. The Indian government has come forward and to tackle the same as they have announced the following measures:

• The GST returns and composition returns have been extended to June 30, 2020
• For filing of GST returns; companies less than Rs 5 crore there will be no late fee and penalty will be charged. For above Rs 5 crore, only an interest rate of 9% will be charged.
• With respect to the filing of returns with MCA21 registry, there is a moratorium being issued from April 1 till September 30 no additional fees for late filing.
• In respect to the companies act there is a mandatory requirement for holding a Board meeting. It has also been relaxed for 60 days for the next two quarters.
• For newly incorporated companies, additional time of six more months is being given for filing declaration of commencement of business
• If there is a company director who does not comply with the minimum residency requirement of 182 days.
• If the contingency of coronavirus continues beyond April, then sec 7, 9, 10 of the IBC will be suspended for a period of six months.

Conclusion

The outbreak of coronavirus is going likely to cause a recession in the coming months and need to prepare for the same. Never waste a proper downturn. This is the period where best will churn out from the rest and can invest in best talent without any excessive marketing spend. The experts will always advise us to plan for any future contingencies. This is a conscious shutdown of our economy, trading jobs for saving hundreds of thousands of lives. Life saved is Life earned.

Startups and Mediocre ventures need to reassure their business model to go through the pandemic and have a successful survival strategy for minimum next six months prolonged. Take a severe action and draft a well-accessed plan and act with compassion.

Recommended Post: Relief Measures Related to Covid-19 Outbreak.