SAMIK SARKAR was managing to eke a profit out of his online apparel store before the coronavirus crisis hit India, forcing the 36-year-old to reinvent his business overnight.

“I started selling masks because that’s all I could sell,” Sarkar said. “I have salaries to pay.”

The rapid global economic slowdown, India’s coronavirus lockdown of 1.3 billion people and an exodus of venture capital are testing a startup community that has quickly become one of the world’s biggest, raising a record US$14.9 billion last year.

The success of Indian e-tailer Flipkart, sold for US$16 billion to Walmart in 2018, helped draw in billions of dollars in funding from global venture capital firms, while U.S. and Chinese tech giants stalked promising prospects.

But in just a few months much of that cash has vanished, with venture capital and private equity investment in India expected to fall by 45 to 60 percent this year, EY estimates.

A group of the top venture firms, including U.S. groups Sequoia and Accel, warned startups this month that it will be “very difficult” to raise financing anytime soon.

Five venture capitalists said that only a few of the best companies from their existing portfolios would be able to get further funding, while most new ventures will likely be locked out for the foreseeable future.

This rapid turnaround has left scores of Indian startups which had been plotting expansion and fundraising considering anything and everything to keep themselves from going under.

Data from Tracxn, which monitors startup investments and financials, shows there were 1,406 funded startups in India in 2019, compared with 351 in 2008.

“When you look at pre-COVID business models, half of them will not survive post-COVID,” said Sudhir Sethi, founder and chairman of Bengaluru-based venture capital firm Chiratae Ventures.

The funding freeze has been compounded by India’s move in April to step up scrutiny of investments from overseas.

And with SoftBank, another major funder of Indian startups, facing setbacks elsewhere there is little relief expected from the Japanese technology backer.

This leaves investors and startups with few alternatives but to focus on pursuing profitability and reducing cash burn, Sid Talwar, partner at Mumbai-based Lightbox Ventures, said.

(SD-Agencies)