Will start-up ecosystem reboot itself after covid-19?
Coronavirus outbreak has brought the world economy to standstill sparing none ranging from a street vendor to MSMEs to corporate houses to startup enterprises. Startups heavily depend on investors and stage funding to sustain and grow but pandemic and subsequent lockdown periods have dented the startup ecosystem significantly.
In 2019, Forbes magazine valued startup segment at around US$ 3 trillion over a period of two from FY16 to FY18, which is feared to lose billions of dollars due to Covid-19 pandemic.
Most affected among the lot were the newly founded startups due to reduced business and financing activity, but that does not imply that investors are not looking for new opportunities, but more cautiously.
According to Startup Genome, The venture capital investments in China have also decreased by more than 50% in first quarter of 2020 since the Covid outbreak, as compared global scenario. Extrapolation of such a drastic impact may dry up the global start-up ecosystem approximately by US$ 28 billion.
Startup entrepreneurs are prepared to take the risk of highest probability and that makes the case for great enterprise irrespective of the challenges. Indian startup community grew quickly in past few years, with ideas spurting up and investment pouring in, to become 3rd largest startup hub worldwide.
According to Traxcn – a dedicated agency that tracks private sector investments and finances, startup investments in India plunged by more than 80% in Q1 FY20 from US $ 1.73 billion in Q1 FY19, due to Covid pandemic.
During lockdown period startups serving in Fintech, Edtech and cyber security gained popularity on account of increased demand and user-base. This space is also attracting investors. Besides other niche segments such Machine Learning, Automation and Artificial Intelligence are also on radar of the venture capitalists.
On the other hand, some committed lenders would continue to invest on pre-Covid terms only, reaffirming their trust in the business idea and assessing the current market scenario. However, investors spectrum for varied industries will widen and lookout for more sustainable enterprises.
In past two years there was many seed and series funding took place which are still in active mode and expected to continue beyond 2021, depending on how market will reshape. Another bright side of post Covid investment scenario could be that the part of funding may slow down or halted till 2021, and startup ecosystem may see investments flowing in 2021, which is good for planning a new startup and float in 2021.
The startups that are in active investment cycle need to devise a strategy for going forward w.r.to managing expenses and clients for making up the losses apart from understanding the investors mindset in these challenging times. Some essential services providers, Edtech; entertainment/media companies witnessed significant growth during Covid pandemic. Business models involving healthcare, diagnostic and automation are expected to grow during Covid 19.
What Covid -19 has impacted the most is consumers’ psychology which is going to affect the spending patterns in future. Start-ups need to realign their focus to offer a product or service that must fill the gap between customers’ need and market availability of the same product/service. The key word is ‘Essential’ – Commodity and Service.
Coming next two years may not give a clear picture on availability of funds and no one can predict it for startups, so a cautious approach must be exercised to stay afloat during these testing times.
Brad Feld, author of the book – Startup Communities – writes, “A startup community needs a 20-year time horizon, because it takes decades to build an innovative community in a geography.”
So majority of the startup ecosystem is still in nascent stage across the globe. It is growing and developing, grasping new rules, adapting to the new business environment. Neither this market had attained maturity nor does the covid impact bring it to cessation.
The bigger question is that how this new ecosystem will evolve from investment and innovation point of view? How will we unlock the fresh market avenues and build our capabilities accordingly?
