Covid-19 impact: Seed-stage start-ups find varied means to tide over cash crunch

Annapurani V Chennai | Updated on April 14, 2020

These range from frugality measures to pay cuts to reaching out to mentors

With the pandemic creating havoc the world over, venture capital (VC) and private equity (PE) investments in India decelerated in the first quarter of 2020. Firms that have received only their seed or pre-Series A funding are looking at varied ways to cope with the situation.

For one, they are conserving cash by sticking to ‘must-have’ expenses rather than ‘good-to-have’ ones.

“We are going extremely frugal on the kind of spends we are doing currently. We had been poised for growth all along up until corona happened,” said Sameer AM, co-founder and CEO of Bonito Designs, an interior design firm. “From here on, it’s all about being watchful, conscious and meticulous around how we see the cash on hand, and also the receivables that are due to us. We're talking to our partners to rework the payment timelines and the structures previously agreed upon.”

Operations are being significantly impacted with warehouses, stores and offices being shut down. From logistics issues to poor internet connectivity, these firms are facing a plethora of challenges.

Samarth Sindhi, founder of Digi-Prex, an online subscription pharmacy start-up, said that though demand has increased significantly due to the lockdown, the fulfilment rates are lower due to supply chain disruptions. The company is having to fulfil twice the number of orders with less than half its staff strength, which is causing delays, he added.

“Since all our engineers are working from home, software testing has become slow. Developers have to rely heavily on simulations and recorded test data in order to debug their software,” said Puru Rastogi, founder of Mowito, a start-up that makes navigation software for robots.

Pay cuts and expense re-evaluations

According to data from Venture Intelligence, a firm which tracks private companies’ investments, financials and valuations, VC investments (Seed to Series F investments in companies less than 10 years old) in Indian start-ups during the quarter ended March 2020 were just $1.74 billion, nearly 22 per cent lower than the $2.22 billion in the same period last year.

The situation in the US isn’t very different either. According to a recent survey conducted by NFX ( a San Francisco-based early-stage VC firm), to which 286 seed-stage and Series A founders and 114 venture capitalists in the US responded, nearly 52 per cent of the founders are looking at cutting office expenditure, 39 per cent at cutting marketing costs and 38 per cent at instituting a hiring freeze.

Start-ups in India are also now looking at reducing their expenses to keep the show going for as long as possible. “We want to bite the bullet and take the hard route of keeping everyone on board till the situation comes to a point wherein it would be impossible to keep that promise any more,” said Bonito’s Sameer. “However, we have taken a few hard calls on payrolls with respect to the conservation of costs.”

“We have made our financial plans such that we have runtime till December 2021. Therefore we can manage with zero funding for the next 18 months,” said Mowito’s Rastogi.

“We're taking this time to really look through our profit and loss, and see how we can cut down costs. All good-to-have expenses have been cut down to sustain the must-haves,” said Rashi Narang, founder, Heads Up For Tails, a start-up that sells supplies for pets. “We are going to be rolling out a pay-cut across the company (except for blue-collar workers), but at the same time, we are also incentivising those who are able to come to the frontline (with necessary permissions and passes) with 1.5x times their salary,” she added.

Staying afloat

Furthermore, these start-ups are also trying to get their survival tactics in place, be it through pivoting their business models to help navigate the current crisis or by reaching out for guidance.

“A lot of them have actively started seeking support and mentoring,” said Geetika Dayal, Executive Director, TiE Delhi-NCR.

She added that a helpline has been made available on the Startup India portal to assist start-ups across the country. While the portal handles regulatory queries, the business-related queries are being looked into by TiE chapter members.

Published on April 14, 2020

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