In May, NASSCOM released a survey on the impact of COVID-19 on India’s startup ecosystem, which found that 70 percent of domestic startups — primarily early and mid-stage ones — have a cash runway of less than three months. And, 40 percent of startups have either temporarily paused operations or are on the verge of shutting down.
As NASSCOM focusses on entry-level and mid-level startups, it conducted a pulse survey with 250+ startups in this segment. More than 90 percent of startups said their revenues are going down, two-thirds believe this impact will last for 12 months.
Interestingly, the survey drew a range of reactions from within the ecosystem.
In a conversation with Shradha Sharma, Founder and CEO of YourStory, Debjani Ghosh, President of NASSCOM, says, “When we published the survey, there were two types of reactions. Our team was flooded with calls from startups saying ‘Thank you for giving us a voice. Everyone was talking about MSMEs, large companies, and they assumed that startups will survive.’ We also got a lot of concerned calls from VCs saying that this can’t be true. ‘What is happening and we are not seeing this’.”
“We realised that they didn’t get the context of the survey. VCs are typically focussed on the top-level of startups, which have funding and are going through cost rationalisation. But the angel investors were tremendously happy to see the research,” she adds.
When the Centre announced a Rs 20 lakh crore stimulus package for an “Aatmanirbhar Bharat”, there was no mention of startups in the plan. While the ecosystem is certainly hopeful that the government will announce some startup-specific provisions to help them, the NASSCOM President says that they are also working with ministries to understand the startup segment.
The regulatory body has also made a range of recommendations to help startups. These include getting refunds, exemption from taxes, ESOP relaxations, a fund for deep-tech innovations, and more.
Debjani throws more light on the survey findings, the trials and tribulations of startups, potential measures that the government could take in the current crisis, the future of remote work, and key learnings from the pandemic.
Edited excerpts from the interview.
Shradha Sharma (SS): I want to touch upon the stimulus package where there is no mention of startups. What are NASSCOM recommendations that can uplift the sector?
Debjani Ghosh (DG): NASSCOM is working with ministries to understand the startup segment. Angel investors are the biggest source of funding for early-stage startups, VCs rarely play here. And in this environment, angels are adopting a wait-and-watch strategy, they won’t be taking any bets. But they should also realise that this is when startups need them more than ever.
We know that startups are a resilient lot and they are desperately trying ways to pivot. For instance, move to health, edtech, fintech, and this is also accelerating the move to AI, IoT, and other tech. But that comes with a cost. We are very thrilled to learn that DPIIT has put forward a proposal for a seed fund and a credit guarantee programme for early-stage startups. I really hope this comes through.
The government also needs to step in and play an important role in saving nascent startups. We are requesting three things from the government:
1) Get the refunds out and that will give a major burst of liquidity. Just pay them now, the government can worry about accounting later. They will earn many brownie points if they take just this one step.
2) The government can take some big steps like no tax for startups. Let them come out of this crisis first, and then think about GST, taxes, rentals, electricity, etc. truly become a startup nation with two years of exemption.
3) We are also saying that the ESOP relaxation be extended to DPIIT-approved startups too. It has only been given to IMB-approved startups, which is less than six percent of the ecosystem. As a founder, if you cannot pay your staff but can keep them engaged with ESOPs for a few more months, that’s a huge benefit.
SS: There are recommendations on creating a deep-tech investment fund too?
DG: We’ve said around Rs 3,000 crore is required for a deep-tech investment fund targeted at entry and mid-level startups.
Tonnes of good work is happening there, but they are not getting VC money. At a time like this, when there is a need to create solutions in-house, a deep-tech fund will go a long way in driving innovation.
SS: You have played key roles across industry and policy. What are the real, on-ground things you would ask entrepreneurs to do right now?
DG: Save cash. Sit on it. If you’re six people, give up that office, stop paying that rental. Cost rationalisation is so, so important. Get ready for the long haul. This is going to take at least a year to 18 months.
This is also a good time to take a hard look at what you’re doing. Figure out if there’s a market for it now or in the future. Look at opportunities with strong tailwinds.
Sometimes, entrepreneurs don’t realise that a great tech doesn’t have a market. Because it is not solving any problem in the real world. And in today’s world, people are not going to invest in the long-term future. This is the time for tough questions. If you feel you’re not on the right track with no revenue in sight, then figure out things.
SS: The tech industry is a key contributor to India’s GDP. How are you seeing this sector take the double shock of a lockdown and a slowdown?
DG: We had to shift over four million people and two million assets to work from home. We had to secure office assets, and there was no time as the lockdown was announced overnight. Two things were important: employee safety and business continuity.
It wasn’t seamless, there were tonnes of hassles like getting permission at the grassroots level. But we shifted without any disruption. Everyone came together — state governments, central government, cops, industry. We managed it in a week.
Our industry serves more than 75 percent of Fortune 500 companies. We got great feedback on the WFH transformation of Indian IT. I would say the lockdown, other than the initial hassles of logistics, didn’t have a big impact on us.
But the slowdown is what we’re worried about. We are a global industry and our fortunes are closely tied to the global economy, which is slowing down. I think recovery will depend on when a vaccine or cure is found and when things get back to normal. Until then, it is going to be a cautious normal.
Right now, two things are happening — several verticals like travel, tourism, and hospitality are significantly impacted. And other segments like education, health, finance, supply management are seeing a lot of investment in automation. We’ll hope to see at least some level of growth.
SS: One of the things happening now is that many good people are being laid off, and some of them are building interesting products at home…
DG: Over the year, we will see more layoffs across sectors. All the talent that is being laid off can be put to good use for the nation and by the nation if we can create an entrepreneurship package to encourage them to come forward and innovate.
SS: What would your advice be to those who are being laid off and to the entrepreneurs who are laying off?
DG: The people cost is one of the biggest in the tech world. Cost rationalisation happens in every crisis. Layoffs are going to get worse towards the second half of the year. So, I’d tell entrepreneurs — do it with heart. Have conversations, help however you can, give a good reference.
Do it in a humane way. These things come back. Loyalty goes a long way in our business.
To those being laid off, I’ll say — make yourself indispensable. Certain tech skills are much sought-after and will give you leverage in the company. NASSCOM has made many courses like coding, AI foundation, Big Data foundation, robotics free. This will pass, there will be new opportunities. But, be ready with your skills. Use the time to upskill, stay positive, and reach out for mentors.
SS: What does WFH mean for women in leadership, entrepreneurship, and tech. Will it lead to more women working or is it going to adversely affect them?
DG: I strongly believe that it has the potential to impact women positively. Companies are not going back on their diversity and equal opportunity goals. They still have aggressive targets on that front. So far, they have not been able to meet them. Now, with more women being able to remote work, they have a pipeline.
The future is going to be blended between remote and office work. If women have the ability to remote work, it will allow them to come back to the workforce and contribute much more than in the past.
But this blended model will also need some fundamental changes to take place. Until the menfolk change their behaviour, women will always be trapped under housework. So, this is a good time to press the pause button and change behaviour. Women also have to step up and seize this opportunity.
SS: In the blended working style, which is the new reality, what are the challenges and opportunities you’re seeing?
DG: WFH has not impacted productivity in the tech industry. People are doing a lot more work, which is both good and bad. You are working 24 hours and you’re not realising it. Remote working will be an integral part of all future work models.
But companies have to invest a lot to ensure they have the right employment policies, and HR that knows how to handle an offline-online work model. Companies have to figure out which roles need a presence in the office. It cannot be person-based, it has to be role-based. They have to ensure that HR is not biased towards either segment, and understands the nuances of both.
Cybersecurity is another area they have to put a lot of focus on. When you WFH, since you can’t control everything, there is always a risk of phishing attacks. Companies will have to invest more in cybersecurity to minimise those risks.
And, the other thing is employee morale and mental health. The ideal situation is where we can rotate people across online-offline segments. TCS has said that by 2025, they will be only 25 percent of people in premises. That’s a very bold move. I think most companies will see a 50-50 model going ahead. But, they will have to think through the mental health part. We’re already facing video conferencing fatigue.
SS: What are your thoughts on India being Aatmanirbhar at this time?
DG: The way the world is going to evolve, we have to be self-sufficient. Especially when it comes to critical supply chains like medical supplies, electronics manufacturing, etc. We have seen that when a crisis like this happens, the critical supply chain gets impacted the most and has a crippling effect on the economy.
We should not close our borders and I hope Aatmanirbhar doesn’t mean that. But building self-sufficiency with the right level of collaboration will be the mantra going forward. The lockdown has made us realise how we are capable of doing much more.
SS: Finally, what have been your own learnings and hopes in this time?
DG: I am a big fan of Charles Dickens, and he said: “It was the best of times, it was the worst of times.” The IT industry is facing one of its biggest disruptions. We haven’t faced anything like this ever.
At the same time, this disruption is creating new opportunities and bringing out the best in us in terms of innovating, adapting, and helping each other. NASSCOM has a WhatsApp group where we are sharing all the best day-to-day methods. Anytime there’s a crisis, this industry becomes collaborative. That gives me a lot of hope.
My biggest takeaway is that some countries and companies will emerge stronger out of this crisis. There will be consolidation.
Not the richest, biggest, or strongest, but one that adapts fastest will come out of this.
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