Impact Of COVID-19 On Start-ups

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COVID-19 has adversely impacted the overall investment sector. While businesses across all sectors can sense the repercussions of COVID-19, start-ups have particularly been one of the most vulnerable, and in fact, are facing various formidable challenges both, from a business as well as from an operations' perspective. Most start-ups have witnessed a decline in supply and or demand, except for those start-ups that are engaged in the supply and, or delivery of 'essential services', educational technology, gaming or streaming services. Notwithstanding the above, glitches in the supply chain network have either way presented challenges for all start-ups. However, the start-up ecosystem has been continuously striving to adapt to the present situation as flexibly as possible, by focussing on the need to innovate and diversify their business techniques and its operations.

 It is suggestive that the value of investments in India have fallen to $0.33 billion in March 2020 from $1.73 billion in March 2019, which indicates a fall of nearly 81.1%.There has been a total fall of 50% in the number of companies funded - presently, 69 firms in March 2020, in contrast to 136 firms in March, 2019. Further sources suggest that sometime between mid-February, 2020 & end of March, 2020, a number of investors have also pulled back from closing current funding rounds. Thus, one of the major challenges faced by the start-ups has now become sourcing funds, which has resulted in cash flow issues.

The lock-down has not only impacted the daily business operations, but it has also forced a good-many start-ups into preparing for contingency plans to limit workforce and to cut down employee salaries. Various start-up founders have also taken pay-cuts to limit the losses faced.

COVID-19 Start-up Assistance Scheme

  1. After recognising the numerous financial and operational challenges faced by start-ups, the Small Industries Development Bank of India ("SIDBI"), which also operates as an implementing agency for the 'Fund of Funds' for start-ups, has promulgated a 'COVID-19 Start-up Assistance Scheme' (hereinafter "the Scheme") which is intended to provide assistance to certain eligible start-ups that have successfully demonstrated the ability to implement innovative measures so as to ensure business continuity amidst the COVID-19 crisis, and has also ensured employee safety as also financial stability.

Eligibility criteria under the Scheme includes the following start-ups that have:

  1. at least 50 employees;
  2. a positive net worth;
  3. received funding through SEBI registered alternate investment funds or VC/PE/Angel funds that invest in start-ups;
  4. a minimum turnover between INR 20-60 crores ( for the Financial year 2019 and Financial year 2020);
  5. been incorporated for less than ten years; and meets the requirement of the promoters and, or founders of the start-up having invested their own capital in the businesses.

As per the scheme, the start-ups that were EBITDA positive in December, 2019 or, project a positive EBITDA for the quarter ending June, 2020 would also be included.

Furthermore, under the Scheme, working capital loans of up to INR 2 crores at an interest rate of 10.5% would be provided to eligible start-ups for a period extendable to 36 months.

Source : https://www.mondaq.com/india/operational-impacts-and-strategy/949762/impact-of-covid-19-on-start-ups#:~:text=COVID-19's impact on Start-ups&text=There has been a total,firms in March, 20195.

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