NEW DELHI, July 5, 2020: The COVID-19 pandemic has shaken India’s start-up ecosystem to its core, with many young companies struggling to survive in an environment marked by uncertainty, falling revenues, and dwindling investor confidence. Small and medium enterprises (SMEs) and start-ups, already fragile due to their limited reserves and dependence on constant funding, have been hit harder than larger corporates, according to a new nationwide survey.
The report — conducted jointly by the Federation of Indian Chambers of Commerce and Industry (FICCI) and the Indian Angel Network (IAN) — surveyed 250 start-ups, 61 incubators, and a group of investors. The findings paint a sobering picture:
70% of start-ups reported that their business operations had been adversely affected by the pandemic.
12% had to shut down completely, while another 60% were running with major disruptions.
Only 22% of respondents said they had enough cash reserves to cover fixed costs for the next 3–6 months.
This financial fragility has forced start-ups to take tough measures. Nearly 68% reported cutting operational and administrative expenses, while 43% had already implemented salary cuts ranging from 20–40% during April–June 2020. Alarmingly, 30% of start-ups indicated they may have to lay off employees if lockdowns and restrictions continued for too long.
Funding Challenges and Investor Sentiment
On the funding side, the outlook was equally bleak. According to the survey:
33% of start-ups said investors had put their decisions on hold.
10% reported that deals had been cancelled altogether.
Only 8% of start-ups actually received funding that had been committed before COVID.
This sharp decline in capital inflow has forced many start-ups to pause business development activities, manufacturing, and expansion plans, leading to significant revenue losses and cancelled orders.
From the investor perspective, the sentiment has cooled considerably:
A massive 96% of investors said COVID-19 had negatively impacted start-up funding.
92% expect low investment activity over the next six months.
59% of investors indicated they would focus primarily on supporting their existing portfolio companies, while only 41% are open to new deals in the near term.
Interestingly, COVID has reshaped sectoral priorities. Healthcare has emerged as the most attractive investment sector, drawing interest from 35% of investors, followed by EdTech, Artificial Intelligence/Deep Tech, FinTech, and AgriTech. This shift highlights how the pandemic is pushing investors towards businesses that are more resilient or essential in a crisis.
Incubators Adjust to Virtual Support
Even incubators, which nurture early-stage start-ups, have been affected. The survey found that 44% of incubators saw their operations disrupted. Most have shifted to offering virtual mentorship and investor connect sessions, trying to keep their portfolio companies engaged despite physical restrictions.
Industry Leaders Call for Immediate Relief
Industry leaders stressed the urgent need for support measures to help start-ups weather the storm.
Dilip Chenoy, Secretary General, FICCI, said:
“The start-up sector is stressed for survival at the moment. The survey indicates that lack of working capital and cash flow could lead to major layoffs in the next 3–6 months. Start-ups need an enabling ecosystem and urgent flow of funds to continue operations.”
Ajai Chowdhry, Chair of FICCI Start-up Committee and Founder of HCL, called for viewing start-ups as engines of growth:
“Start-ups are crucial to India’s vision of becoming Atmanirbhar (self-reliant). They have tremendous potential to innovate, but many are under severe pressure due to lack of capital. Unless government and industry step in with funding and business opportunities, we risk losing many valuable innovations.”
Padmaja Ruparel, President of Indian Angel Network and Co-Chair of FICCI Start-up Committee, highlighted the role of investors:
“In these uncertain times, investors must go beyond funding and provide mentoring and handholding support. IAN has announced a Debt Fund to help portfolio companies raise working capital and ensure business continuity. Such initiatives must be replicated at scale to save more start-ups.”
Ganesh Raju, Co-Chair of FICCI Start-up Committee and Founder of TurboStart, urged entrepreneurs to re-strategize:
“Start-ups must focus on cash preservation and explore alternative funding sources. Many are already rethinking their business models to adapt to new realities. Their strength lies in innovation, which they must leverage to emerge stronger.”
Why This Matters
The start-up ecosystem is often seen as a propeller of India’s economic growth — driving job creation, innovation, and global competitiveness. The crisis threatens to derail years of progress, especially given that most Indian start-ups operate with thin margins and rely heavily on external funding.
Experts warn that without urgent relief measures such as tax breaks, faster refunds, soft loans, and government purchase orders, India risks losing not just businesses, but also the momentum of innovation built in recent years.
Yet, amid the challenges, the survey also found resilience: many start-ups are pivoting to new opportunities in healthcare, education, and digital services — areas expected to define the post-pandemic economy.
The message from industry leaders is clear: if supported now, start-ups could play a central role in India’s recovery and its journey towards self-reliance.
