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This article was first published 2 years ago  » Getahead » Do You have START-UP Queries?

Do You have START-UP Queries?

Last updated on: June 04, 2021 15:29 IST
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Muzammil Patel, Global Head Strategy and Corporate Finance at Acies and Rahul Murthi, Global Head, Acies Ventures will answer all your start-up queries.
Please send us a mail at with the subject line 'Start-up Queries' and Muzammil and Rahul will answer them.


In the run-up to this initiative, here are four challenges start-ups have been facing in COVID-19 times and how to overcome them.

Illustration: Uttam Ghosh/

As each wave of the pandemic sends new ripples across sectors, start-ups have found themselves grappling with new challenges each day. Even in good times, liquidity tends to be the bane for most start-ups until they reach a respectable Series A funding round.

However, the pandemic has been brutal in exposing business model deficiencies and shorter liquidity runways. Approximately 70 per cent of technology start-ups in India had a cash runway up to three months during the core stages of lockdown, as reported by NASSCOM.

Most successful start-ups experiment with their offerings until they pivot into something the market finds more acceptable and the start-up finds more monetisable.

With liquidity at a significant premium, the ability to experiment and the will to pivot are ever weakening.

As the risk appetite and conviction in the business withers, entrepreneurs seek to either raise funds by selling cheap or by exiting the business entirely.

Ironically, while liquidity keeps getting pumped into the banking system, a number of start-ups report delays in receiving tax refunds and export benefits. Many have seen delays in payments from larger organisations impacting their working capital cycles.

Raising debt capital has never been cheap. However, access to funds in the pandemic has been a struggle for most start-ups.

Approximately 65 per cent of technology start-ups in India were unable to raise funds during the lockdown -- which since has improved albeit not substantially as reported by NASSCOM.

Even with workplace vaccination policies that are meant to return the economy to normal, start-ups struggle to get their employees vaccinated to support return to work as workplace vaccination is focused on large employers.

All in all, the vibrant start-up ecosystem which was buoyed by supportive economic policies has been unravelling as institutional and administrative support in the pandemic has largely overlooked the sector.

The limited proportion of start-ups whose business model was either unique or evolved and have been able to weather the pandemic still await the removal of economic uncertainty so that they can focus on growth and expansion.

All in all, the pandemic has further unlevelled an already uneven start-up playing field.

The liquidity issue

Start-ups with reasonably balanced liquidity positions find liquidity mismatches emerging from delays in income tax refunds and GST refunds. Disbursement of export incentive under MEIS and SEIS has been delayed with no specific payment dates in sight.

Most of the funds designated for MSME credit guarantee schemes were meant for organisations that already had lines of credit and were seeking moratoriums or additional facilities.

As the pandemic hit, larger organisations focused on liquidity conservation by delaying vendor payments among other things. A lot of their vendors are start-ups and MSMEs.

Even with the regulatory and legal framework requiring timely payment to MSMEs, most large organisations continue to show disdain for their obligations related to making timely payments.

While most of these issues have persisted even pre-pandemic, the slowdown in economic activity has seriously compromised liquidity matching at start-ups.

Additionally, payroll across the board was significantly impacted for working individuals as they experienced salary cuts and even furloughs. This significantly affected the liquidity of B2C focused start-ups as consumer demand for their products or services withered, which forced them to resort to aggressive operational and even long-term cash optimisation activities ranging from slashing marketing spends and overheads, reducing salaries or downsizing the employee base and allocating a majority of available liquidity to 'keep lights on' on their operations.

With product innovation deferrals and de-growth in enterprise value being observed, investor attraction began to wane making it further difficult for B2C start-ups to raise funds.

The policy problem

Start-ups where registered with the DIPP enjoy certain benefits, the most significant of them being a limited-period tax holiday. While start-ups have been awaiting approval of their applications for these exemptions, advance tax payments continue to eat into much needed liquidity.

The start-up ecosystem has been vibrant with the announcement of various schemes and support programmes. While most programmes and schemes have helped assure start-ups of support, the actual trickle down of liquidity and policy benefits under these schemes is yet to materialise for most start-ups.

The business model problem

By their very nature, start-ups have an imperfect business model. The imperfection arises from uneven cash flows, reliance of few customers and investments into new ideas that haven't yet or may never fructify. The busines model problem can be supported through early-stage venture funding.

However, the focus of venture funding has remained largely on players expending money on customer acquisition. This means that start-ups in the B2B space or B2SMB space have largely been overlooked in the funding quest.

The pandemic has also amplified the business model risks in a manner that start-ups have not been accustomed to. As a result, approximately 46 per cent of start-ups in India were forced to make necessary business model changes as reported by NASSCOM.

The technology problem

Most start-ups build minimum viable products (or MVP) on the technology they can get their hands on at the time. Most technology investments are driven by ill-conceived or vague advice that leads to scrapping and rebuild of the entire platform post the initial fund raise.

While entrepreneurs could be focused on the marketplace, they tend to be focused on the technology rebuild. This consumes significant time and resources and allows for imitators to enter the space with a more robust product.

The technology problem finds it roots in most entrepreneurs seeking to monetise an idea without having a co-founder with deep technology expertise.

With the pandemic, the move from the MVP to a sustainable revenue-generating product has become a distant dream.

Finding the light at the end of the tunnel

Start-ups are likely going to have to fend for themselves. The uneven playing field is unlikely to get levelled soon. While policy interventions in regularising payment of tax refunds, export incentives and payments by debtors will go a long way, start-ups will have to work through their liquidity contingency plans with renewed vigour although now with a more cautious sense of optimism.

Start-ups will have to focus on the following measures to keep themselves afloat and wait for the pandemic to pass:

  • Keep technology re-invention to the minimum and focus on monetising what is already built
  • Accounts or services that seek investments rather than consume existing capacity should be avoided
  • It is never too late to seek the right technology partner. While raising liquidity to tide over the current situation, focus on venture funds that bring with them technology expertise
  • Pivoting may be important to bridge business model deficiencies. However, pivoting should be focused on repackaging or repositioning the product or service. Pivoting that involves more capital outlay is only going to accentuate the liquidity problem
  • Larger and well-funded organisations are always going to have an unfair advantage. A start-up’s advantage lies in minimising wasteful spends and overheads, cutting down bureaucracy and speed in decision making. Now is the time to amplify the start-up advantage to squeeze out every last bit of advantage

It is inevitable that a number of start-ups will continue to sell out or close down before the end of the pandemic. Estimates and surveys conducted by various institutions put the number as high as 40 per cent to 60 per cent of existing start-ups.

Loss of a vibrant start-up ecosystem impacts the ability of the country to innovate and create opportunities for the younger workforce. While policy support and enforcement will go a long way in ensuring that the impact is defrayed, start-ups need to do their part in curtailing wasteful exuberance in these times and focus on sweating and monetising their assets and intellectual property.

Muzammil Patel, Global Head Strategy and Corporate Finance at Acies and Rahul Murthi, Global Head, Acies Ventures will answer all your start-up queries.
Please send us a mail at with the subject line 'Start-up Queries' and Muzammil and Rahul will answer them.

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