Impact of COVID 19 on the Indian Startup Ecosystem

At present India has the third-highest number of unicorns (startups with a valuation greater than USD 1 billion) in the world, after the USA with 243 and China with 227. The year 2021 alone has added 10 unicorns to the list despite the 2nd wave of COVID-19 still ravaging the country, and lockdown suppressing the demand. It is pretty impressive, considering 12 unicorns were added in the previous year and we are only halfway through 2021. During the same period, 1600 new startups were founded.

India’s startup ecosystem is an emerging market for venture capital and private equity from all over the world with firms like Naspers, SoftBank and Tiger Global being the dominant investors. China is one of the biggest stakeholders and backs almost 18 unicorns in India, but with the new Foreign Direct Investment rules, such investments would require the Indian government’s prior approval. 

 However, the situation is not so optimistic for all startups. A survey conducted in April 2021 by NASSCOM reports that 9 out of every 10 startups saw a decline in their revenue. The growth of most Indian startups, especially the non-tech ones, has been remarkably restrained.

The global pandemic situation has accelerated the implementation of online technology globally, and more so in India. Many businesses are shifting online, with VC (Venture Capital) firms especially focussing on tech startups. The popular tech sectors include digital insurance, FinTech, HealthTech, and social commerce platforms.

The Indian government in 2016 began an initiative called – Startup India to help create an enabling environment for entrepreneurs. Startup India provides support in three areas: it provides subsidies and assistance financially, it reduces regulatory burden, and  it helps provide an environment for industry-academic partnerships by establishing bootcamps and innovation labs. However, the funds of Startup India have been invested in less than 1% of all Indian startups, meaning most of them still depend on private funding. Additionally, the distribution and funding for these startups are highly concentrated in large urban cities with few options for those in rural areas. There is a disparity of investments among different sectors as well, with IT-enabled technology sectors attracting most of the funding. The success of the entire ecosystem depends on the diversification of investments into sectors like agriculture, healthcare, education, and social services.

India has the potential to become a bright spot in the world economy because of the unmet demand of a large population. There is a disparity between what India has achieved so far and what it is capable of achieving. The pandemic has surely been a defining moment  in the evolution of India’s startup scenario. There is an increasing requirement for digital solutions which again enables the development of new unicorns, however it is possible that many small startups are bound to fail. Booms and busts are a part of the startup cycle.A few of the noteworthy startups like WhatsApp, Pinterest, and Uber were formed right after the 2008 Great Recession, so we can possibly witness the same pattern after the current financial crisis.

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