How are Startups Dealing with the Covid-19 Crisis?

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How are Startups Dealing with the Covid-19 Crisis?

The extent of the damage caused by the pandemic to the fledging Nepali startup scene has been huge and it might take a long time for the businesses to recover.

--BY MANISHA BALAMI

Help2Shine, a startup company which works to connect house maids to home owners, was forced to halt its entire operation after district administrations of the Kathmandu valley announced prohibitory orders to curb the spread of coronavirus. “The second wave of Covid-19 forced us to stop all operations at a time when we were still recovering from last year’s first wave,” says the company’s co-founder Prakash Basnet.

Founded three years ago by Basnet and his three friends, Help2Shine was doing good business before the pandemic. But now the startup is struggling for its existence. “We have struggled to keep the company afloat for over a year now and if this situation continues, I fear the company will have to shut down permanently soon,” adds Basnet.

The company which used to provide employment opportunities to more than 300 women to work as house maids now has only seven women. “Even till April, we had around 120 women working with us,” says Basnet. Left with sharply reduced revenue, the company also axed the number of its office staff to five from 14 over a year ago.

Another startup co-founded by Basnet called Mr. Help closed down last year after the government announced lockdown in March 2020. The company used to help its customers to renew vehicle registration certificates.

The story of Miteri Jaibik Sanitary Pad, a Chitwan-based biodegradable sanitary napkin producer, is also similar. “Our team is willing to work, but the restrictions in movement have stopped us to source raw materials,” says Moti Kandel, secretary of the company. According to her, even supplying the pads already produced before the announcement of the prohibitory orders remains a big challenge. “This has affected our business significantly and we do not have other ways than to wait for the situation to normalise,” she expresses. Miteri Jaibik, which launched its product in the market in May 2019 is considered to be the first company in Nepal to produce biodegradable sanitary pads.  

The problems faced by Help2Shine and Miteri Jaibik are some examples of how the Covid-19 pandemic has affected Nepali startups. Binay Devkota, CEO of Clock b Business Innovations, a startup accelerator, says that the pandemic has wreaked havoc on the Nepali startup scene which was on its way to becoming vibrant before the Covid-19 crisis emerged in early 2020. “At present, loss of market and drying up of cash flows are the major challenges for startups,” he says. According to him, startups have been affected more this time than during last year’s lockdown. “The crisis has hit them at a time they were recovering ast year’s losses,” adds Devkota.

Startups that managed to keep some money in reserve funds are in a better position for recovery. According to Kabi Raj Joshi, founder and managing director of Next Venture Corp, managing funds for backup is rare among startups in Nepal. “One of the reasons behind this is that startups here operate as bootstraps,” he says. In business, bootstrapping is a way of growing an enterprise without external support using personal savings and loans, and revenue earned from sales of goods and services. “Startups in advanced and emerging economies have good financial support from big investment companies which help them to withstand a crisis situation,” says Joshi.  

Experts say that the survival of startups also depends on their innovativeness and business models. According to Devkota, companies that have adopted digital business and payment methods are less affected than those doing business in old-fashioned ways. In the last one year, it has been seen that opportunities for e-commerce companies have grown significantly with more consumers preferring ordering from such platforms over visiting physical stores to buy different types of items from daily essentials to apparels.

Kathmandu Organics, an e-commerce platform selling vegetables and fruits, has seen daily orders doubling to 100-120 from 50-60 over a year ago.  However, the government’s lack of clarity on operation of e-commerce businesses has hampered deliveries, according to the company’s founder Nisha Taujale KC.

Amigo Khadka, co-founder of Upaya City Cargo, an urban logistics services provider, shares a similar experience. Khadka says that the demand for the company’s services has grown significantly at present. “However, we are operating only at 35 percent of our capacity due to the restrictions and the government’s apathy to address the problems faced by businesses like us,” he says.

On May 29, presenting the budget plan for the fiscal year 2021/22, Finance Minister Bishnu Paudel made some encouraging announcements for startups such as a waiver of income tax for the next five years, up to Rs 2.5 million in loans as seed capital to start a company at just 1 percent interest rate along with the allocation of Rs 1 billion for the establishment of a challenge fund.

Although entrepreneurs are happy that the government has come up with programmes to support them in the time of need, a majority of them cast doubt on the implementation of the policies. Reshma Maharjan, founder of Nature Craft, a company which produces handicraft items from grass, says that while the announcements are pleasing to the ear, the government’s promises will be limited to paper only. “Similar announcements were also made through the budgets previously but were not implemented at all,” she says. She shares her own experience of visiting different banks for collateral-free loans to women entrepreneurs announced by the government, but to no avail.

Niraj Khanal, co-founder and CEO of Antarprerana, a business accelerator, opines that the problems in implementation lie in insufficient homework carried out and unclear strategies. “First of all, the government does not have a clear definition for startup businesses as it has not set any particular criteria for a startup,” says Khanal, adding, “Secondly, there’s no clear framework on how the policies will work and how the money allocated in the budget will be spent. The eligibility criteria for the startups to get the subsidised funds is also not clear.”

Joshi of Next Venture Corps suggests that it would be great if the government could make arrangements for direct transfer of the relief money, provide grants or come up with rescue packages to help the struggling startups.

While it is yet to be seen how the government will keep its promises, business accelerators have started working to provide the much-needed support to the startups.  

Devkota of Clock B Innovations says that besides mentorship, they have planned to invest in companies. “We are working to raise funds and money to invest in up to 10 companies so that they can get back on their feet again,” he informs.  

Meanwhile, Next Venture Corp has planned to continue its business accelerator programme and help startups to attract investment. “We can only support a limited number of companies at the moment. We will work with 10 companies at a time,” says Joshi. Besides, Next Venture Corps is also starting programmes for women entrepreneurs and agri startups to help them get a platform and funding as well. Likewise, Anterprerana is also working to make a couple of companies investment ready, according to Khanal.  

While the last 14 months of the Covid-19 pandemic have been very hard for startups, the crisis has also provided them with some time for reflection. “I have seen companies trying to improve their internal process systems, evaluate their past experiences and are learning from this,” says Khanal.

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