India’s startup ecosystem, which was deeply impacted by COVID-19 and 15% of startups halting business operations due to lockdowns, is recovering faster than expected and already has 7 new Unicorns in 2020, with 4 of these startups reaching unicorn status during covid-19~
Delhi-NCR, October 14, 2020: TiE Delhi-NCR, among the most vibrant chapters in the global TiE network, released an insightful report today, titled, ‘COVID-19 and the Antifragility of Indian Startup Ecosystem,’ in partnership with Zinnov, a leading global management, and strategy consulting firm. The report provides an in-depth understanding of the impact of COVID-19 on the Indian startup ecosystem, by assessing multiple dimensions like funding and M&A landscape, sectoral impact, entrepreneur and investor sentiments, and changing market behavior. The report is supported by Cisco Launchpad, NetApp Excellerator, and Lowe’s Innovation Labs.
2020 started with the Indian startup ecosystem, the world’s third-largest, growing rapidly on the back of a spectacular 2019. However, COVID-19 jolted the startup ecosystem across multiple dimensions and the impact was severe during the lockdown period from March to June 2020. There was a dip in overall funding by 50% during the lockdown as compared to pre-COVID levels, around 40% of start-ups were negatively impacted, and 15% of Indian startups were forced to discontinue operations due to COVID-19.
However, as the economy opened, the pace of recovery – both in demand and in investor sentiment – has been faster than expected. Shift to digital consumption has provided the necessary tailwind to sectors such as education, healthcare, and commerce; while several sectors like travel, hospitality, and mobility, that were negatively impacted, are now on a recovery path. For instance, 75% of start-ups are gradually, but steadily, recovering post lockdown. Around 30% of startups have pivoted to newer markets for alternative revenue streams, while more than 55% of startups are focusing on profitability and reducing cash burn.
Further, deal activity – both in terms of total investments and the number of unique funded startups – has recovered to pre-COVID levels during the quarter that ended in September 2020. Interestingly, four Indian startups have become unicorns amidst COVID-19, and India is on track to have 8 unicorns in 2020 – almost the same number of additions as in 2019. Additionally, the startup ecosystem is expected to have 7-7.5 Lakhs direct jobs and 26-28 Lakhs indirect jobs in total, by the end of 2020, further cementing its recovery. The brave response of entrepreneurs and the ecosystem as a whole, to the uncertainty brought on by the pandemic, by adopting new business models in line with the evolving customer needs and market conditions exemplifies the antifragility of the ecosystem.
Rajan Anandan, President, TiE Delhi-NCR, said, “Although the immediate impact of the lockdowns on the Indian startup ecosystem was severe, we have been amazed to witness how quickly Indian founders have acted to reimagine their businesses. What has been most impressive is how many startups have reduced burn and improved their unit economics very rapidly. Digitally-led segments have recovered much faster than anyone expected and in many spaces, demand is well ahead of pre-COVID levels. Investor sentiment has also recovered quickly and we expect the Indian unicorn club to steadily expand through 2020 and 2021. Although COVID-19 has been a major setback for the ecosystem, we believe that the changes that the pandemic has brought on will make our ecosystem much stronger, across every dimension. India is on a path to have 100 unicorns by 2025.”
The report illustrates the range of impact on the various sectors and elaborates on the steps were taken by entrepreneurs to reinvent their business models to minimize the impact of COVID-19. Elucidated in the report are factors that reflect the ecosystem’s resurrection, including a pickup in M&A activity and seed as well as late-stage funding. In Q3, the Indian startup ecosystem showed positive signs of recovery – funding reverting to 98% of Q1 (pre-COVID) levels, investor sentiments becoming positive, ticket sizes increasing, number of startups raising their first investment round also reverting to Q1 (pre-COVID) levels – ensuring that the startup ecosystem bounced back, with an expectation of becoming healthier and more vibrant in the future.
Speaking about the report, Pari Natarajan, CEO, Zinnov, said, “Despite setbacks due to COVID-19, the Indian startup ecosystem has risen to the challenge, as evidenced by its faster than estimated recovery. In the initial days, the startups reduced cash burn and redeployed existing capabilities to focus on tiding over the uncertainty. The shift to digital consumption certainly provided an opportunity. By being nimble and rapidly responding to different challenges, looking at them as an opportunity, the Indian startup ecosystem has displayed its antifragile nature. Despite the trying times, and the death of many startups, the ecosystem has played a key role in employment generation and is expected to create ~15-16 Lakhs direct jobs by 2025. There is clear evidence that India’s future is about technology, policy, innovation, and entrepreneurship.”
Madhurima Agarwal, Director – Engineering Programs and Leader, NetApp Excellerator, said, “Resilience, hardiness, and adaptability are inherent traits of startups that allow them to succeed despite all odds. COVID-19, a black swan event, wreaked devastation in its wake, both on the societal and the economic fronts. The manner in which startups responded to the challenges posed by COVID-19, is a testament to the antifragile nature of this ecosystem. While certain sectors were impacted worse than others, it drove positive change in key areas like automation and digital transformation. In every challenge lies an opportunity; the mantra is to survive these turbulent times and prepare for the opportunities that follow.”
Sharing her perspective on the report, Sruthi Kannan, Head, Cisco Launchpad, said, “COVID has shaken the world, causing disruptions across a multitude of parameters. Despite all negativity and bottlenecks, the Indian startup ecosystem has been able to hold its firm grip – courtesy of its antifragile nature. Startups have been nimble, despite the challenges, in converting this crisis into an opportunity. We are witnessing an inspiring response – from harnessing tailwinds in select sectors to business pivots, to repurposing capabilities to new or adjacent markets. We continue to be positive about the impactful change that Indian startups can make, both locally and globally.”