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Are Indian Startups Feeling the Recession Heat?


Job cuts, large scale firings, frozen hiring, factory shutdown, these terms are no more alien to those of us who’ve been reading about the slippages in GDP growth led by declining consumption across industries. Economic slowdown as a topic has stirred a lot of debate over the past months with doomsday predictions tempered by statements of a cyclical slowdown awaiting correction.

At CXOToday, we had reported about the FMCG industry shifting their focus to startups to stay in the race by beating the slowdown. The immediate response was that startups may just sidestep the ill-effects of a declining economy and we believed so too. A report in the Mint added to this debate with a view that startups may just bear the brunt of the slump.

The article suggested that investors had become cautious about putting their money in the Indian startups. It said the economic slowdown in India and global macroeconomic uncertainty had begun to prompt venture capital investors to take a cautious approach.

There is no claim as yet which could say that the capital investment has declined or that the number of companies receiving funding has fallen. However, there is certainly a change in the way funding is happening. The process of scrutinizing and making the final investment is becoming slower.

The report in Mint quoted Vinod Murali, partner at venture debt fund Alteria Capital to suggest that many growth rounds are now taking longer to close. Diligence timeframes were getting extended as well as time taken for documentation due to complex cap table rights from previous rounds.

As per data from Venture Intelligence, startups have raised a record $6.8 billion in the first nine months of the year compared with $5.8 billion in the year earlier. This is significant given that 2018 itself was a record-breaking year for such deals.

However, the momentum has been largely driven by select investors, including Tiger Global Management, which has deployed more than $500 million so far this year. The company was quoted as saying in the Mint article that it had clarified to the firms it has invested into that follow-ons for its investments are not guaranteed, and will happen only if the firms perform exceptionally well.

Abhijeet Ramachandran, Co-Founder, Tips2Trade, a financial training center in Mumbai, shared his opinion with CXOToday over email. And this is what he has to say:

“Based on the trend of the last two years, startups in education, travel, FinTech and health care have dominated in terms of funding. Due to current uncertainty in the Indian economy, funding for the FinTech start-ups could slowdown. PE/VC’s could also stick to the tested & proven startups like Paytm, Flipkart, Swiggy & Byjus. However due to tremendous potential and consumer demand, recession proof business models related to education, health care along with food logistics should continue to dominate the Indian start-up funding story over the next few years.”

So, what does it all boil down to? Are startups actually feeling the heat? The answer is probably a no at this juncture. For, the fact is that the economic slowdown at best can only alter the investment preference in line with the changing business landscape.

The start-ups are scattered as a category and we cannot have a generalised impact on all of them. The argument could be zeroed down to the kind of output each start-up is giving, when seen from an investor’s eye.

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