Effects of the Economic Slowdown on the Startup Culture in India

2019 has been a very difficult year for the financial sector, and the country’s economy. Some of the reasons include infrequent job cuts, a complete hiring shutdown, problems concerning the production, and so on and so forth. The outcome can be considered as a catastrophe because India’s overall Gross Domestic Product went down to 5%. This is a problem, a major problem, unlike anything that has been witnessed since the last 6 years.

Very many sectors have been hit by this unsuspecting onslaught, particularly the automobile industry, financial services, real estate, multiple NBFCs included, and the FMCG sector as well. Owing to the fall in the revenues of multiple companies, all the eyes are now set upon the budding startup companies. But the outcome could be uncertain since the economic slowdown can also hamper their growth as well.

The Startup Grouping

Startup Culture is essentially grouped into two different sections,

  1. Individuals who are just creating their own companies.
  2. Individuals who want to acquire a good market share.

The common factor in both categories is the seed funding that is received by them, and it would largely depend on where exactly the Company is prospering.

Rutvik Doshi, Managing Director of Inventus Advisors is of the opinion that, the economic slowdown might have a little effect on the startup Companies. But there are those who feel that the effect might just be minimalistic and would not get affected by the market plunge.

Companies like Ola, Uber, Swiggy might not be affected adversely since there is a continuous stream of customers availing their services almost every day. These firms might not even feel the difference.

Concerns regarding Market Share

For those startup firms who do not occupy a sizeable chunk in the market, the economic remission would not cause any worry. But it is a complete antithesis for those that do govern the market entirely. The impact on them could be anywhere between bad to calamitous. These calculations are as per the senior economic advisors and the market strategists.

But the other side of the market also believes that Indian Startups need not worry about the current market situation at all. The Chairman of Exfinity Ventures, Mr. V. Balakrishnan is of the opinion that this is just a routine shift in the market, and this slump would not really affect the economic activity that much.

Impact on Funding

This is something that is always a headache to the startup firms. Although if a startup firm would be initiating their business operations freshly, then the effects would not be so much, observes Rutvik. But he is also of the opinion that the firms who have been in the field for the last 5-6 years or so would need to be prepared for the onslaught.

Even investors would be shying away to put in any large investments in this situation. Prominently the impact would be visible during the late-stage funding procedures since that would mean that the investors would either wait for the expected returns or just bow out completely.

But the Indian startup firms are mainly dependent upon the cash flows from foreign investors. Any slips in the international market, and that would sound the alarming bells of danger to them, as they depend heavily on them for funding.

As per Navin Honagudi, Partner at Kae Capital is of the opinion that there is always a misbalance between the public and the private market. An instance of the same was witnessed in 2016-17 when the latter was down, and the public markets skyrocketed upwards. So, anything can be possible.

What is the Future for them?

There are startup firms who would have prepared for the same and have therefore raised funding for their company, but it would not be the same for those who want to take the similar road.

Renowned Economist and Former G.M. of Canara Bank Mr. Manoranjan Sharma states that this would not decrease the capital raising being done by the firms since it is essential for them. But the fund-raising capabilities would largely depend upon what the business is, how many competitors are there, and what are the risks involved?

Automobile Companies like Maruti-Suzuki and Ashok Leyland had to clamp down their production rates by large amounts owing to the financial slump. Reasons being that the supply and demand are not exactly matching up to their expectations.

Startup firms did propagate the idea of the new age economy, but the traditional economy methods are still in force. The losses that have been sustained by the traditional one has not been completely recompensed by the new one, as per Mr. Honagudi.

The festive season is almost upon us, and the companies are hoping against hope that the tide will turn. But the current market is a definite dampening of spirits even in the festive season.

E-Commerce giants Flipkart and Amazon have already announced their respective sale days. It remains to be seen whether the market would rise above the odds and outperform or at least go past the slump-down mark.

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Nirmalya Ghosh

Nirmalya has done his post graduate in business administration and now working as digital marketing executive in a US based firm. He loves to share the trending news and incidents with his readers. Follow him in Facebook or Twitter.

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