Covid-19 impact: Technology start-ups have multiple silver linings

Topics Coronavirus | start ups | Lockdown

The impact is also disparate across segments of e-commerce, India’s biggest start-up sub-sector, where sale of groceries and food-related essentials are permitted during the lockdown
When Prime Minister Narendra Modi removed his mask while speak during his televised address to the nation on April 14, the business world was gasping. India had been under a nationwide lockdown for 21 days to prevent the spread of the novel coronavirus, and that had kept economic activity across the country on hold. Like all other industries, the tech start-up sector had been hoping for the curbs to be lifted. App-based commerce businesses — from cabs to general e-commerce — had been non-operational for nearly a month. 

PM Modi, however, kept the lockdown in place, extending it till May 3. But he suggested all e-commerce services might be allowed from April 20 as part of relaxations for some sectors. And then came the rude shock: Just a day before e-commerce was supposed to open, the government made a U-turn and said the status quo should be maintained.

This back-and-forth by the government, and the uncertainty of the whole situation – a novel virus that has no cure – has been a massive curveball for start-ups, and the impact is still unfolding.

Impact on the tech world

The impact has been disparate across the technology world. Online travel platforms, hotel aggregators, flight booking sites, cab-booking apps and real estate-related services have been shut since March 24. They have had zero sales, and this scenario is unlikely to change for several months.

On the other hand, digital services — from social media, to online video streaming, e-learning, news, digital payments and e-health — are all seeing a boom. But this surge might not be sustainable, say experts, as people would pull back on their discretionary spending in the near future.

The impact is also disparate across segments of e-commerce, India’s biggest start-up sub-sector, where sale of groceries and food-related essentials are permitted during the lockdown. Everything else, including electronics and mobiles, which account of for 60-70 per cent of these companies’ yearly revenues, have been shut. 

A study in contrast are food-delivery apps, which have stayed afloat by convincing the authorities that folks need their favourite cuisine delivered to their homes during lockdown. However, as most restaurants stay shut, their services are also limited.


Retrenchment and salary cuts have hit start-ups hard. The most impacted are the ones related to airlines and hotel industries. Ixigio, US-listed MakeMyTrip, Goibibo and RedBus have all announced salary cuts. Fabhotels has laid off 20 per cent of its workforce, and Oyo has asked thousands of its employees, mostly those in China and the US, to go on leave without pay.

The so-called unicorns – start-ups valued at over $1 billion – are also spooked, as most of them tread on marginal runways, with monthly sales barely funding outsized operations. But it is the little guys, early-stage start-ups, that are the ones facing an existential crisis. All new funding discussions have stalled and funds are doubling down to support their existing portfolios.

“After a good start to 2020 for PE/VC investments, both investment and exit activities declined considerably in February 2020,” says Vivek Soni, partner and national leader (private equity services), EY. Investments in February declined 30 per cent from the previous month, and could slump even more.

Calls to save the digital and start-up ecosystem have gained steam. On April 9, a collective of two dozen start-up founders and top VCs — from Mohit Bhatnagar of Sequoia to Paytm’s Vijay Shekhar Sharma — wrote to the government for a “robust relief package”. The wish list included paying salaries for only 50 per cent of the workforce, interest-free loans, waiver of office rent, and tax benefits.

The government has also acted to prevent hostile takeover by foreign investors. It changed foreign direct investment (FDI) rules on April 19, which now mandates that all deal proposals from entities in countries sharing borders with India — China, Pakistan, Bangladesh, etc — have to be approved by the government.

The idea is to prevent hostile and opportunistic takeovers, especially by Chinese entities, which have high interests in Indian firms, experts say.

Pivots and partnerships

Since the novel coronavirus was first discovered in China in late December, infections from across the globe have nearly reached the 2.5 million mark, and fatalities stand at 170,000. While analysts are at a loss to estimate the business impact, the broad consensus is that it will be a protracted recovery over 8-10 months, and some sectors will face a more significant churn than others.

“Pivot is the new name of the game for all start-ups. Somewhere it is a complete pivot, and somewhere partial,” says Sanjay Mehta of, a newly-founded early-stage venture capital firm.

At least five unrelated players that ordinarily deal in other products have started selling groceries, listed as an essential service by the government, on their platforms. These are Zomato (in partnership with Grofers), Meesho (via Ninjakart), Paytm Mall (via Dealshare), Perpule (via Vishal Megamart) and NoBroker (via BigBasket).

A recent media report suggested Grofers and Zomato (they have Sequoia as a common investor) might be exploring a merger, but the discussions would move slowly, given the extraordinary times.

Meanwhile, since schools and universities are shut, edu-tech companies are having a field day. Byju’s, the country’s largest online education start-up valued at $8 billion, is offering its products for free. Others like Facebook-backed Unacademy and Toppr have followed suit by putting out free subscription.


The lockdown has forced start-ups to move quickly. Grofers, the leading grocery firm, opened a new warehouse in Gurgaon in two weeks and hired hundreds of new workers. “We figured that if we could not have more people in the same warehouse — because of social-distancing norms — we should open a new facility,” explains founder and CEO Albinder Dhindsa.

Grofers’ services, closed for 5 days during the early days of the lockdown, were reopened gradually. “Now we are operating at 90 per cent of our pre-Covid capacity but the demand is too high. We are able to open (ordering) slots only for 15 minutes in a day,” says Dhindsa.

Others, meanwhile, are transitioning to take whatever benefit they can from a sharp uptick in digital consumption. For instance,, which operates over 200 gyms across the country, is streaming online workout sessions.

Co-founder and CEO Ankit Nagori says these online workout sessions are attended by 25,000 people daily, and the number is growing by 5-10 per cent each day. has also added telemedicine, and plans to launch psychological care sessions, and a Covid-19 testing solution in partnership with testing centres.

Digital services thrive

For digital-only services — those like Facebook, Instagram, Sharechat, Netflix, Gaana, MX Player and TikTok — the lockdown has had a positive impact. 

“Over the past three weeks, our platform has witnessed a 2x increase in time spent across genres,” says Karan Bedi, CEO of MX Player, an over-the-top (OTT) platform. Owing to the surge, Netflix' stock in the US hit a 52-week high recently.

Not only is traffic higher but platforms are also adding new users – even those who earlier were not on social media or watched OTTs. “There is an expansion in demographics,” says Jehil Thakkar, partner (media & entertainment), Deloitte India. “In that sense, it is a plus for digital entertainment and social media platforms. But it remains to be seen whether this is only a momentary blip or will continue this way.”

“Consumption is up, but monetisation is a question”, adds Thakkar.

For platforms linked to tangible services, the situation is grim. Ola and Uber have completely ceased passenger cab operations. Their gimmickry of positioning themselves as services for health practitioners during this crisis has not yielded results. Uber’s tie-up with grocery chains for delivery is currently the only area where it is operational, albeit in a limited manner.

They fear that thousands of cab drivers who have financed cars through them will be unable to pay back. This might become a bad-loan crisis for banks, Ola said in a letter to the government on March 24.

What lies ahead

Estimates for how the Indian economy will fare, given how things stand today, are now beginning to come. British bank Barclays estimated a $234.4-billion economic loss for India, and forecast nil gross domestic product (GDP) growth this calendar year. The World Bank lowered its forecast on India’s GDP growth to between 1.5 per cent and 4 per cent during FY21 from 6.5 per cent earlier.

Sequoia, a storied venture capital firm, has told founders to conserve as much cash as possible. “Focus on quality of revenue, margins, etc, as opposed to growth at all costs through discounts. It is okay to reduce growth rates. Survive at all costs, and focus on getting to 18-24 months of cash runway,” Sequoia India’s Bhatnagar said in a video session for founders arranged by TiE.

Even if the lockdown is lifted on May 3, experts do not see most players recouping their losses during this period. "E-commerce firms may get users to shop more with special sales events planned in May-June, but people won’t check into hotels more, or take more Uber rides just because the lockdown is lifted," explains Gaurav Rastogi, CEO of mutual funds platform Kuvera.

“If this becomes a deep recession, all non-essential services will be at risk,” Rastogi says, even as he predicts a “savings bonanza”. People are saving more money with a curtailed expenditure. These extra savings by people who have their jobs — this is a majority group — could cause a demand uptick once the lockdown eases. “People might want to upgrade their smartphones or buy a new car. Some part of that extra private savings would come into investments — fixed deposits or equities.”

“Another consequence of the lockdown will be a shortage of some food items," says Vasu Chinnathambi, co-founder of India’s largest grocery supply chain start-up Ninjakart. “A challenge on the sourcing side will be the availability (of vegetables) in a month or two months from now. A lot of farmers are not harvesting or sowing new crops. This means there will be less availability in two months’ time, and prices will go up.”

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