Startup Street: Funding, Layoffs And A Plea For Help In The Times Of Covid-19
This week on Startup Street, a bigger picture of the problems plaguing India’s startup ecosystem, what the community wants and what is being done, at a time Covid-19 stalled businesses temporarily.
Here’s what went on...
Saving India’s Startup Ecosystem
In an already uncertain time, those in India’s startup sector are wrapped in news of layoffs, forced resignations, pay cuts and a lingering question of how long these businesses can survive.
Of the 855 recorded companies by Big.Jobs, 257 firms, including Zomato, 91springboard, Curefit, Oyo, Bounce, Belong, Treebo, Shuttl, UpGrad, cut employee salaries in an effort to keep their businesses afloat. And 20.2 percent recorded companies witnessed layoffs. The data has been compiled through crowdsourcing, managing by Big.Jobs, which tracks hiring activities of companies.
It also showed that more venture capitalist-backed companies are letting go of employees. In an industry-wise breakup, hospitality, automotive and travel and transporation are the worst hit sectors — in line with the global trends.
Another website called Layoffs.fyi has built a system to track startup layoffs across the world with data compiled primarily from public reports. According to this website, 221 startups globally, have seen layoffs and over 19,570 people are out of jobs. It also reported layoffs in Meesho (200 employees), Shuttl (40), Acko (45), FabHotels (80), TravelTriangle (250) and Bounce (120).
A startup survey conducted in the last two weeks of March by research firm Praxis Global Alliance showed that 37 percent startups have enough to run up to 12 months, while 21 percent for less than six months and 10 percent for less than three months.
A part of India’s startup community has sought help from the government. Some of the biggest managing startups and venture capital firms have co-signed a letter to Finance Minister Nirmala Sitharaman, asking the government to bankroll 50 percent of all salary bills and contract wages between April to September, to “ensure no job loss”.
“Our startup companies across the nation are inherently young, less resilient, and most vulnerable. Many of them face likely devastation during this extraordinary economic downturn,” the letter read.
“At this dire moment, Indian startups need a robust relief package from the government, lest all our collective efforts of the past few years are in vain.”
Other requests include:
- Bank to offer 50 percent of loan to the extent of last year’s revenue or last two-year payroll as working capital loan with low interest rates to startups without collateral through PSU bank.
- The Government of India should allow startups to claim goods and services tax refund on account of accumulated GST balance up to 50 percent of the balance shown in GSTR-3B in March-20 up to maximum of Rs 20 crore.
- Allow for a moratorium on the deposits of TDS and GST until June 30, 2020.
- Enhance the limit for SIDBI Fund of Funds commitments to Indian AIFs to 35 percent from the existing limit.
- Release money from the SIDBI Fund of Funds to all VC funds that have pending capital calls, provided said money is invested into startups within 30 days of the drawdown being received.
The letter refers to other countries such as the U.S., the U.K., Germany and Canada that have announced “massive bailout packages” for their startup ecosystems. The letter has been signed by Kris Gopalakrishnan, Mohandas Pai, Accel Partners’ Prashant Prakash, Nasscom’s Debjani Ghosh, Sequoia Capital’s Mohit Bhatnagar, Kalaari Capital’s Vani Kola, to name a few.
Shailendra Vyas, chief executive officer and director at Bioheaven Genotec, too, said startups needed special attention by banks.
Vikas Bagaria, founder of Pee Safe, said while it’s good that all top startups came together, the government needs to help those that really need help and not VC-backed startups who have enough funds.
“They should open up with their peers and open a route to merge competition startups into a one big company. It’s time to consolidate and utilise each others assets to deliver,” Bagaria said. “VCs role will be very effective here. Also, they should unlock some equity for the employees in the form of ESOPs, along with help in extending the runways.”
If VCs really want to help, Bagaria said they should immediately sign off the termsheet and execute the SHA for all talks in progress to provide that liquidity for those business which are almost on verge of closing the deals.
Sumanth Raghavendra, founder of Deck App Technologies, however, expressed his disappointment with the Indian startup community.
“I think for a lot of startups it makes sense, but VCs/investors should be able to support their ventures for the next three-four months at least,” said Sunny Verma, founder of Delhi-based Afforestt, in a conversation with BloombergQuint. “The government should first take care of the poorest of the poor.”
Sidbi’s Startup Assistance Scheme
Small Industries Development Bank of India has launched a ‘Covid-19 Startup Assistance Scheme’ to provide working capital loans to growth-stage startups.
This is the first time the financial institution, which conventionally specialises in equity fund investments, would be extending credit to startups.
“Sidbi will provide financial assistance to startups that have demonstrated the sustainability and adaptability of operations amid the global pandemic but are facing a cash crunch,” a statement on its website read.
According to the scheme document, these working capital term loans will carry an interest rate of 10.5 percent per year on reducing balance and are to be paid in a maximum of 24 installments.
The financial institution has restricted loan amounts to Rs 2 crore per startup with terms extending up to 36 months, including an utmost moratorium period of 12 months.
These loans can be considered against the firms’ GST refund and the proceeds can be used for various working capital requirements, including salaries or wages, rent, administrative expenses and payment to vendors, the statement said.
KSUM Offers Webinars To Startups In Tough Times
The Kerala Startup Mission—a nodal agency for entrepreneurship development and incubation activities in the state—has planned a series of online mentorship sessions for startups, in association with industry bodies, on a range of topics to equip them meet the challenges arising from the Covid-19 crisis.
High-profile Industry leaders, including those from Twitter, Facebook, LinkedIn and Paytm, are also part of the year-long webinar series.
Startups can ingest ideas from industry stalwarts by taking part in the free sessions from their convenient places. During this lockdown period, startups are facing difficulty in meeting and networking with industry heads and get expert advice on various aspects of business such as marketing, managing funds, investors perspective on the pandemic, business modelling, technical sessions and much more, a media statement said.
The webinars seek to bridge this gap by keeping fledgling entrepreneurs engaged and help the startups learn the best practices to adopt at the time of crisis. It will also bring in active number of participants than in the physical assembly of conferences.
(With inputs from PTI)
Rs 100-Crore Grant For Innovators Working On Covid-19 Solutions
Founders of Indian startups, members of investment advisory firms and independent advisers have joined hands to launch a Rs 100-crore grant for supporting innovators working on solutions to control the Covid-19 pandemic, which has claimed more than a million lives globally.
The mission of the Action Covid -19 Team is to provide guidance and resources to startup founders and employees, and empower teams through financial grants and mentoring to create a large-scale impact in the fight against Covid-19.
The group will be supported by partner NGOs and industry veterans and will collaborate with government agencies to scale-up solutions that show promising results.
“Investors, industry veterans and founders will collaborate and support startup founders in their preparation and planning as they face significant economic impact caused by Covid-19,” a statement said. “It will be a dynamic resource to share best practices with them and enable them to collaborate and cooperate efficiently with business partners and various other external and internal stakeholders.”
A Rs 100-crore grant will springboard innovators who are working on solutions to overcome Covid-19, it said.
(With inputs from PTI)