Several Startups Prioritized Growth Over Profits, Covid-19 may change that: Survey

  • Late-stage and stage companies plan to make a profit over the next four years
  • With the COVID-19 outbreak, start-ups and large companies have experienced a concentrated impact on their businesses, especially in the travel segment

A recent 2020 survey conducted in February shows that many Indian companies have prioritized growth over profitability, but that could change because of the COVID-19 outbreak that has affected thousands of businesses around the world.

A majority of startups in India still tend to expand quickly and users on a rapid scale, rather than increasing profitably, reveals a survey undertaken by InnoVen Capital, a venture debt capital provider. About 79 percent of InnoVen’s surveyed start-ups showed a strong bias towards growth over profitability.

Both late-stage startups and nearly 91 percent growth stage startups surveyed said they planned to be profitable over the next four years. Although 82 percent of consumer brands and 53 percent of fintech companies claim to be profitable in the next 1-2 years or at least expect profitability.

This notion of growth over profitability prevails, even as the report highlighted that startup founders in India are anticipating a weaker venture funding climate in 2020. Approximately 75% of founders surveyed by InnoVen said they had a favorable financing experience in 2019, but approximately 58% of founders expect fundraising to be more difficult in 2020.

InnoVen’s survey also showed that most founders will see funding and improving top management as the top priorities in 2020. Certain goals include enhancing suitability for the product market and concentrating on productivity, the survey showed.

Just 14 percent of the funders surveyed by the venture debt firm said profitability is a top priority for 2020, compared with about 27 percent who said fundraising was the top priority.

Read Startups by 2020: Key questions asked

Although a majority of the founders (57 percent) surveyed believe the most likely exit scenario would be through mergers and acquisitions and secondary exits, many founders are now beginning to look at IPO’s as a viable exit choice. Approximately 42 percent of the founders said an IPO could be one of their 2020 exit choices, which is a small increase from 38 percent in 2019.

Approximately 54 percent of growth and late-stage start-ups foresee a 5-year exit, with 62 percent suggesting IPO as a possible exit. Over 50 percent of Fintech start-ups surveyed said IPO is the most likely exit mode. 60 percent of start-ups in e-commerce think that secondary exits are most likely, while 64 percent of start-ups in the consumer sector feel that a merger or acquisition could be the most possible way out.

With the outbreak of the COVID-19 epidemic, however, startups and large companies have seen a concentrated effect on their industries, especially in the travel segment as many countries have approved foreigners ‘ travel bans and visa curbs. Venture capital firms have encouraged startups to hold cash and likely prepare for a downturn in funding.

Sequoia Capital, one of the most involved VC firms, said in particular supply chain disruptions are inevitable with a market slowdown. The firm has also advised investors and businessmen in an unpredictable world to challenge their cash cushion, fund-raising, revenue projections, headcount and capital spending.

Ashish Sharma, CEO, InnoVen Capital India said in a statement that the survey was conducted in February when the impact of Coronavirus was largely concentrated in China and that “it is reasonable to assume that the feeling has become more unfavourable in the past week.”

One thought on “Several Startups Prioritized Growth Over Profits, Covid-19 may change that: Survey

  1. Alex, with the COVID-19 outbreak, start-ups and large companies have experienced a concentrated impact on their businesses, especially in the travel segment. COVID-19 makes a huge impact in all the industries.

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