Is the Indian Startup Ecosystem Ready for Facing the Funding Winter?
Posted on Jan 02 2023.
India is a developing country and is full of talented and budding entrepreneurs. Startups in India have seen exponential growth in the last few years. According to the ministry of commerce and industry, India has registered a whooping rise of 15,400% in startups in the last 6 years. In the travel, accommodation, food, edutech, and agritech sectors, the Indian startup ecosystem has over 100 Unicorns and more are still growing.
But the moot question today is that what hassled to the steep decline in the growth graph and the shutdown of existing new businesses in the last couple of months? Why is it getting difficult for these startups to survive this period? Why is it being pointed towards a Funding Winter? Funding winter is a temporary period in which growth-stage companies are unable to raise new funding and early-stage start-ups have to settle for lower-than-expected valuations and fund sizes. It is a stage that is likely to impact both the probability of raising funds & the chances of negotiating high valuations, in the short to mid-term.
Reasons responsible for Funding Winter
The dip in funding is attributed to a market slowdown and economic volatility. Global recession-like scenario, geo-political conditions like the Russia-Ukraine war, and commodities’ insufficiency have driven inflation, further increasing commodity prices and interest rates. For India, a rise in interest rates, highest ever inflation & steep upswing in commodity prices are probable indicators of a slowdown. The currency depreciation at an accelerated pace also impacts valuations & funding, due to unfavorable conversion rates.
How has Funding Winter impacted all ranges of Indian startups?
Enterprises all across the globe are cutting down their workforce and closing business verticals, among other things. Well-funded Indian companies like Unacademy, Cars24, Meesho, and Vedantu, among others, have together lain off thousands of employees. Pre-seed start-ups have also started cutting down employee incentives, delaying appraisals, and deferring campus recruitments.
Some time back, Edtech major Unacademy announced pay cuts for employees, discontinued complimentary meals at the office, and shut down its global test-prep business. A well-known mobility unicorn has also delayed employee appraisals, and shut down its grocery delivery vertical as well as used-cars business. Edtech player Byju’s companies, Toppr and WhiteHat Jr, have purportedly lain off around 600 employees in all.
How are they trying to cope with the current scenario?
Some startups are even willing to drop valuations substantially, just to secure funds to tide over the current scenario and remain afloat. Many entrepreneurs are trying to adopt the Mergers & Acquisition policy in which they combine 2 or more ventures of a similar genre to optimize marketing and operational cost. Zomato's acquisition of Blinkit and Swiggy's acquisition of Dineout are some of the most popular M&As of the year.
Smaller companies such as Lido Learning, Udayy, and Vauld have shut down operations as they struggled to raise funds in the ongoing downturn. Multiple start-ups, including Ola, Oyo, Snapdeal, and Pharmeasy, have reportedly delayed their IPO plans given the market uncertainty.
How to survive this difficult period of funding winter?
Enterprises must keep in mind that the investors will support the founders that don’t have high-burn models and have a decent positive gross margin as well as an ability to reach break-even on smaller volumes
The following points must be focused on to survive this difficult phase and tide over the grim funding winter scenario:
Limit or delay the venture scaling until the model is proven
Get a reality-check of the true customer need and the right fit of your solution in terms of its value, price, mode, delivery, etc.
Building business, not valuation
In the long term, sustained growth comes from robust Revenue and Profitability. Many founders spend a large chunk of their time chasing investors in search of a big valuation. Spend judiciously if and only when required and curb all unnecessary expenditures stretching your working capital to the hilt.
The cost of retention for any business is far lower than that of new acquisitions. Moreover, repeat customers provide higher value and returns, through a propensity for upselling, cross-selling, and referrals/ advocacy. Create simple customer journeys that make it convenient for customers to interact with your brand. Effective use of AI/ ML to deliver personalization results in better CX and loyalty that enable you to win them over as repeat customers over and over again. Collaborative troubleshooting through co-browsing solutions is a great way to swiftly address customer concerns and retain their faith in the brand.
Adopt Automation Tools
In these tough times for startups which are trying to walk on razor’s edge, AI and machine learning based workforce automation tools could ensure improved efficiency at lower costs. One such tool, Imprint, effortlessly takes care of attendance management, expenses & reimbursements, lead & order management, allowing managers to focus on improving sales and optimizing the available resources.
Environments where people are celebrated usually deliver higher productivity and innovation. A culture of effective communication, transparency, and trust motivate people to bring their best to the workplace. Remote work and hybrid models are sustainable and foster cohesive delivery of results.
Start with smaller funds
Define small and achievable milestones and prove your credibility by over-delivering on the KPI promises made to investors. Winning investor trust can lead to much higher funding for entrepreneurs.
Though Global growth is expected to decelerate to 4% by end of this year and further lower to 3.2% in 2023, Markets will bounce back eventually, probably in a year or more, irrespective of how slow it gets. Investors also predict that stronger, sustainable businesses will emerge from these tough times. Investors will never stop funding solid business models based on real consumer insights and solving real problems in a differentiated manner. A customer-centric approach, reality check, and business fundamentals should be the focus of the ventures in the current scenario.
Asti Infotech is also one such growing startup enterprise delivering a range of SaaS business solutions around automation and optimization. Imprint is one of its new-age workforce automation solutions which helps with the management workforce and monitors their day-to-day activities which results in improved productivity and better revenue generation. As most of the enterprises in the Funding Winter scenario are focusing on cutting down on high-burn models, IMPRINT is going to prove a value-additive solution to budding ventures with minimum investment. For more details click here or schedule a demo right away!