Startups recovering faster than expected, says COVID-19 and Antifragility of Indian Startup Ecosystem report

At the start of 2020, the Indian startup ecosystem was growing rapidly on the back of spectacular growth in 2019. However, COVID-19 jolted the startup ecosystem across dimensions and the impact was severe during the lockdown period from March to June 2020. There was a dip in overall funding by 50 percent during the lockdown as compared to pre-COVID levels, and around 40 percent of start-ups were negatively impacted. The lockdown even led to 15 percent startups discontinuing operations.

A report titled, "COVID-19 and the Antifragility of Indian Startup Ecosystem", released on October 14 by TiE Delhi-NCR in partnership with global management and strategy consulting firm Zinnov, provides an in-depth understanding of the impact of the coronavirus on the Indian startup ecosystem. It assesses multiple dimensions like funding and M&A landscape, sectoral impact, entrepreneur and investor sentiments, and changing market behaviour. The report is supported by Cisco Launchpad, NetApp Excellerator and Lowe's Innovation Labs.

The report suggests that as the economy opened up, pace of recovery – both in demand and in investor sentiment – has been faster than expected. The 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 percent start-ups are gradually, but steadily, recovering post the lockdown. Around 30 percent of startups have pivoted to newer markets for alternative revenue streams, while more than 55 percent of startups are focusing on profitability and reducing cash burn.

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 became unicorns amid the COVID-19 pandemic, and India is on track to have eight unicorns this year – almost the same number of additions were seen in 2019.

The startup ecosystem is expected to have 7-7.5 lakh direct jobs and 26-28 lakh indirect jobs overall by end-2020. The 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 of 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 the impact on various sectors and elaborates on the steps taken by entrepreneurs to reinvent their business models to minimise the impact of COVID-19. In Q3, the Indian startup ecosystem showed positive signs of recovery – funding reverting to 98 percent 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 vibrant in future.

Speaking about the report, Zinnov CEO Pari Natarajan said, "Despite setbacks due to COVID-19, the Indian startup ecosystem has risen to the challenge, as evidenced by it’s faster than estimated recovery. In the initial days, the startups reduced cash burn and redeployed existing capabilities to focus on tiding over the uncertainty. 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 added, "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 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 of 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.