70% of startups have cash for less than 3 months

Digbijay Mishra and Madhav Chanchani | TNN

Bangalore: About 70% of those with cash last approximately three months, and another 22% have money in the bank for three to six months, according to a survey of more than 250 entrepreneurs at all stages by Nasscom . Last month's study showed that approximately 92% of startups have seen revenues decline, and a three-fifths majority see a drop of more than 40%. Up to 60% of new consumer-oriented companies face business closings, he added.

Among those unsure about their runway (defined as the duration they have cash for), 75% of consumer-focused startups have zero to three months. This comes at a time when most investors recommend startups to have cash for 24-36 months as the coronavirus impact is expected to last for several quarters.

The drop in revenue has impacted the cash flows of the new companies, further reducing their track expectations. Most well-funded startups in the country, such as Oyo, the leading hospitality company, food delivery companies Swiggy&Zomato, and health startup Curefit, have already laid off thousands of employees by shutting down business lines and cutting costs. .

About 54% are also looking to change their business models to adapt to changes due to the coronavirus. For example, Bengaluru-based smart apparel startup Turmswear quickly moved to sell hand sanitizers and face masks when it started. “There is volume, but the margins are lower in this space. So it didn't add significantly to my track, but it did help me pay staff salaries in April, said Rameswar Misra, co-founder and CEO of the 3-year-old startup. Misra is now selling these products through select vendors, while he initiated a discounted sale of his core products, shipping for which will begin after closing.

Turmswear has a runway of four-five months and had to undertake a pay cut of over 50% across the team, while over a dozen were sent on furloughs. As a startup you have to survive. What would you do if you don’t survive? ” I have added. Up to 53% of the startups have had to announce pay cuts, the Nasscom report added.

Up to 65% of startups feel that there has been a significant impact on funding. Up to 80% of those in agriculture and financial technology, as well as most startups, are currently facing a funding crisis when economic activities have stopped. About half of startups seek government support and a third wish for loans and more capital from existing investors.

Many are reading the fine print in recent government announcements for the micro, small and medium-sized enterprises (MSMEs) sector, which includes a capital fund of Rs 50 billion, to see if they can take advantage of them. But startups in the travel and mobility sectors, one of the hardest hit, are awaiting clear government guidelines to restart operations.

The biggest help that startups like us would need is a clear and transparent framework on how we can operate, said Gautam Patil, co-founder of Loca, a neighborhood ride-sharing platform. The startup has completely given up its office space, WeWork and 91 Springboard, which represented less than 10% of its cost.

While startups mobilized more than $ 10 billion in 2019, making it a record year, investors expect startups to raise a fraction of the amount in 2020. What is expected to further complicate matters is the recent rule requiring investment from China, an important source of financing for new companies, requiring government approval, further weakening sentiment.

Venture capital investors are also focusing on their existing portfolio companies that are doing well, rather than making new investments. For example, venture firm Iron Pillar has raised $ 45 million in addition to its existing fund of $ 90 million. “Caring for what we had on hand was more important. At the end of January we realized that the market was entering a turbulent territory, said managing partner Anand Prasanna, adding that the extent of the carnage related to the pandemic was not expected.

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