Covid impact on businesses: Businesses braced for the catastrophic impact of COVID-19. The blow may have been milder – The Economic Times

Clipped from: https://economictimes.indiatimes.com/small-biz/entrepreneurship/businesses-braced-for-the-catastrophic-impact-of-covid-19-the-blow-may-have-been-milder/articleshow/78761415.cms

Businesses braced for the catastrophic impact of COVID-19. The blow may have been milder

SynopsisIt was believed that smaller companies cannot absorb the economic impact of COVID-19 and many would simply shut shop. Six months later, it seems the fears may have been exaggerated.

Nearly a week after the nationwide lockdown was declared in March-end, budget hotel chain FabHotels reportedly laid off 100 employees and announced cutbacks in salaries. Among pay cuts, the company’s founders took a 25% cut while employees with CTC under Rs 25,000 saw 20% cut in their salaries. In an email sent to its released employees, FabHotels acknowledged the catastrophic blow of the pandemic towards the travel and hospitality sector and said, “Our revenues had also been hit extremely hard this month and it appears that April is going to be worse.”

However, April was not the worst. Adjusting to the pandemic reality, FabHotels adopted new tactics to bring new demand in the industry. During the initial phases of lockdown, as the government turned schools, hospitals and hotels into quarantine centres for Covid patients and stranded Indians from abroad, FabHotels extended its support. Collaborating with state governments of Karnataka, Tamil Nadu, West Bengal and hospitals such as Apollo, Columbia Asia, and Safdarjung, the hospitality chain offered quarantine stay packages to stranded guests, medical authorities and healthcare professionals at heavily discounted rates.

“A lot of these stranded Indians were migrant workers coming from the Middle East and South Africa. Even for medical staff including doctors and nurses, it wasn’t safe to return home to their families after a 12-14 hour shift in the hospital. Therefore while contributing to the community, we could channel demand and generate a lot of business during this period,” Adarssh Mnpuria, co-founder, FabHotels, told ET Digital.

As the country unlocked, the company tapped into the work from home culture, introducing Work-from-FabHotels initiative offering workation (work plus vacation) packages to employees working in the BPO, IT, consulting sector. It offers contactless 30-second check in, trained housekeeping staff for maintaining hygiene and sanitization and high speed internet and work infrastructure.

According to Mnpuria, the company witnessed a 60% month-on-month growth in June and July.

When the coronavirus hit the country small businesses were looking at a bleak future of dried-up funds, dipping investments and plunging demand. Salary cuts and layoffs were witnessed even among the high profile startups such as Ola, Zomato, Swiggy, cure.fit, AckoVogo, among others in early days of the lockdown. Six months later, startups which braced for the worst appear to have done substantially better than the anticipated damage.

FabHotel 1

FabHotel’s workation offers people contactless check in and high speed internet among other facilities.The numbers?
So how bad did it get? A survey by Nasscom in May said the startup sector was bleeding with nine in 10 startups registering a decline in revenues and a little over a third halting operations temporarily or permanently. The two month-long survey, which received responses from over 250 startups across sectors, found that 40% of startups had either temporarily halted operations or were in the process of shutting down. It is not clear how many finally shut down.

It gets even hazier as the Commerce Minister Piyush Goyal, in a written reply to a question in Rajya Sabha said, the government has no data available on how many startups and small and medium enterprises (MSMEs) were shut down during the lockdown.

It is difficult to say if small businesses stayed afloat because of these cuts and cost rationalization, but the closure of Smaaash in September was the most high-profile one recently.

The ferocity of the virus and the sudden lockdown took everyone by surprise. The year 2020 was supposed to be a good year, especially for startups as it came after a record fund-raising 2019 where an estimated $14.5billion was raised.

Rise up
With the lockdown, the fall for companies was swift. In February this year, bike and scooter rental firm Vogo raised $19.5 million in Series C round. Nearly a month after this, the company reportedly slashed 15% of its total workforce. However, as the Unlock phase kicked off in May opening up travel and transport, Vogo made a comeback announcing new initiatives such as Vogo Now, Vogo Keep, and Vogo Flexi Keep for short and long-term rental of scooters. The company also introduced home drop delivery service of scooters by field staff equipped with safety kits and raised hygiene standards.

“Post lockdown, further to resuming our operations in May 2020, we have received an overwhelming response from both the cities and have bounced back to 40% of our pre-lockdown levels. We have witnessed a strong month-on-month recovery post-lockdown and have registered 25% growth in August 2020. Our transactions are majorly dominated by Vogo KEEP which is 70% of the overall bookings,” Anand Ayyadurai, Co-founder and CEO, Vogo told ET Digital.

Ayyadurai added that the company has begun hiring in its software engineering team.

Similarly, for vehicle insurance firm Acko, which laid off around 45 employees in the marketing, customer service and operation segments initially, completed its appraisal process recently. The company even introduced a performance-based long term incentive plan (LTIP) for its employees with a combination of ESOP and cash bonuses up to 50% as business bounced back.

According to Ruchi Deepak, co-founder, Acko, the company has added new partner platforms to reach customers for existing business lines like car and bike insurance. She added that the auto direct business is already 50% higher than pre-Covid levels and believes that B2B2C business will be back as the partners in travel and shared mobility will come back to normalcy.

vogo founders bccl

Vogo founders (from left) Padmanabhan Balakrishnan, Anand Ayyadurai and Sanchit Mittal.“After cutting costs in initial phases of lockdown, we rationalized expenses through commercial renegotiation and optimised cash flows with better credit periods from vendors and service providers. Customer centric initiatives like ease of buying products and improving service by removing physical verification steps have been helpful. This is the moment for digital platforms like Acko, as preference moves to on-line purchase,” she said.

Time to innovate
For pre-owned vehicle platform Cars24, the lockdown led business to a complete halt, followed by cash flow issues and revenue tanking to zero. In April, it released a statement saying the founders will forgo 100% of their salaries for the next six months and offered its employees ESOPs instead of voluntary pay cuts to keep the business afloat. Gajendra Jangid, Co-founder and CMO, CARS24, told ET Digital that the company also cut down non-discretionary spends including expenditure on marketing.

However, since necessity is the mother of innovation, Cars24 came up with the initiative of home inspection and trained its staff on maintaining social distancing and hygiene standards while conducting business.

“As finances were a concern for many because of job losses, pay cuts, closure of businesses etc., we also introduced ‘Loan against Car’ with same day approval and easy documentation. One can get their car inspected and get a loan up to 100 percent of their car’s present value without the need of selling it; as a car is the safest way to travel in these unprecedented times,” Jangid said.

The company ventured into the two-wheeler market launching Cars24 Moto where customers can buy used bikes and scooters online. Three months after its launch, Cars24 bought over 1000 two-wheelers.

Cars24 saw a 200% recovery in the website traffic and 100% recovery in the car transactions in August. Post-lockdown, from July to August, the overall transactions have jumped by 22% month over month.

Startup community TiE Delhi-NCR recently released a report with Zinnov which stated that 75% of startups are gradually recovering post lockdown. Nearly 30% of startups have pivoted to newer markets for alternative revenue streams, while over 55% of startups are focusing on profitability and reducing cash burn.

Recovery graph_CARS24

The overall transactions of Cars24 has jumped by 22% month over month.“Resilience and re-imagination are two mantras which can tide even through the toughest times. Entrepreneurs need to not let a challenge go waste and should utilise it. Some of the best companies are built in a crisis or downturn. Last six months have shown how industry, entrepreneurs, investors & stakeholders came forward to collaborate & extend support as much as possible during this time.,” Geetika Dayal, Executive Director, TiE Delhi-NCR said.

VC love
Not just startups but even investors had hit the panic button six months ago. A survey by CRISIL conducted in May and June stated that nearly 90 percent of private equity and venture capital investors envisaged a drop in fund-raising activities over the next six to 12 months because of the impacts of COVID-19. Further, leading VC firm Sequoia Capital identified COVID-19 as the ‘black swan of 2020’ moment in a note to its portfolio companies.

However, a few months down the line, investments seemed to have picked up and the VC trust in their portfolio companies appears to remain strong. Acko in September raised $60 million in funding from Munich Re and other existing investors such as RPS Ventures and Amazon. FabHotels is also reportedly looking to raise Rs 10.66 crore from Singapore-based RB Investments.

“The damage did not happen to the extent expected. Most VC-funded companies were given extra money by their backers to tide over this period. VCs continued to believe in the fundamental thesis of the space held good,” Rehan Yar Khan, Managing Partner, Orios Venture Partners, Co-chair, IVCA VC Council, said.

Speaking on similar lines, Pranav Pai, Founding Partner, 3one4 Capital, told ET Digital, that over 2019, the Indian startup ecosystem raised more than $14.5 billion in funding – a record. Therefore, since most of the market leaders were well funded and had built up balance sheet strength as they entered 2020, it helped many startups to sustain.

“Capital flows are still constrained and it will take time for the velocity from 2019 to re-emerge in the mid and late stages. However, founders are actively rebalancing growth and profitability to ensure that they maintain optionality as things evolve,” Pai said.

He added, “As an early stage VC, we have maintained our investment pace on new portfolio additions over the last three quarters. We have seen an understandable decline in mid and late-stage follow-on funding due to the global uncertainty. This has resumed selectively now. We expect many business models that have accelerated their growth through this time to benefit from the incoming investment interest in India.”

According to Ashish Sharma, CEO, InnoVen Capital, the firm took a back seat between April-June. In July, it resumed its investments and closed 6-7 transactions.

“No one had a playbook on how to navigate this crisis but I have been very impressed with the way startups moved fast to assess the situation, do scenario planning and then made the tough decisions–whether it be changes to business models, right sizing of cost structures or improving unit economics,” he said.

According to a report by KPMG- Private Enterprise’s Venture Pulse Q2 2020 Report, despite the slowdown in VC funding, India remains a key market for investors. It said that VC investment in India is expected to remain muted in Q3’20, except for fintech, healthtech, agritech, and gaming.

“The ongoing interest in India is expected to help keep VC deals occurring in the country, if at a slower rate. While Q3 results may also be soft, investment is expected to rebound by the end of 2020,” the KPMG report said.

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