58% Startups anticipates funding will be more difficult in 2023

According to a report, 58% of startups anticipate funding will be more difficult in 2023.

In the ninth edition of its “India Startup Outlook Report,” venture debt company InnoVen Capital reported that 58 per cent of startup owners anticipate funding to present additional obstacles in 2023. According to the startup outlook study, only 71% of entrepreneurs who attempted to seek money reported having a positive fundraising experience, a decline from 92 per cent in 2021.

According to the report, founders anticipate a challenging year, with 58 per cent expecting a more difficult fundraising environment in 2023. The “India Company Outlook Report” is based on observations made by more than 120 startup founders from various stages and industries, including finance, SaaS, D2C, logistics, e-commerce, and health technology.

The InnoVen Capital research states that founders indicated an enormous predisposition for profitability over expansion for the first time in seven years. Up to 55% of founders said that profitability was a higher focus area than in 2021 when it was only 17%.

In addition, 19% of the founders stated that they were EBITDA profitable, and 62%, up from 51% in 2022, said they expected to become EBITDA profitable in the next two years. According to Ashish Sharma, Managing Partner of InnoVen Capital India, “2022 was harsh for the startup environment with an end to cheap money, rising interest rates, and a complex geopolitical scenario.”

The survey-based outlook research also discovered that, despite recent instability in the public market for tech businesses, startup founders are increasingly considering a domestic IPO as the most likely mode of exit. A domestic IPO listing was the most chosen exit option for most founders (63 per cent), up from 58 per cent in 2021.

Only 38% of founders projected a quicker hiring rate, primarily in early-stage startups, whereas the majority anticipated hiring to slow down. The founders of agritech and enterprise SaaS were the most optimistic about hiring. The poll revealed that it is still difficult for founders to find top personnel.

Furthermore, enhancing gender diversity is still a struggle, and current patterns are substantially unchanged from the previous years. In 67 per cent of the organisations surveyed, fewer than 20 per cent of women are in leadership positions. In 38 per cent of those, fewer than 10 per cent of women are on the leadership team.

The vast majority (85%) of founders agreed that the funding slowdown’s most significant effect has been encouraging the development of more environmentally friendly business models. The focus on profitability and unit economics has grown due to the challenging funding climate.

Most founders are confident about raising their next round of funding at a more excellent value despite the market slowdown, with 75% of respondents anticipating a better valuation than their last round.

Startups in the fintech industry have the highest likelihood of raising an up-round, at 96 per cent. The survey claims that the most overhyped industry is education technology, while the least hyped industries are health and agriculture technology.

For the third year in a row, Zerodha won the award for most admired Indian startup among founders, with the Kamath brothers taking the top spot.

Finance winter’s silver lining: Pay attention to profitability

For the first time in seven years (since the survey’s inception), founders were more biased towards profitability than growth: 55% of founders cited profitability as a significant area of attention, compared to only 17% in 2021.

Most (85%) of founders agreed that the current funding slowdown’s most significant effect had been its focus on more sustainable business models. According to the research, a greater emphasis on profitability and unit economics has also resulted from the challenging funding situation.

According to the study, 19% of founders indicated they were EBITDA (profits before interest, tax, depreciation, and amortisation) profitable, and 62%, up from 51% last year, stated they hoped to achieve this goal in the next two years.

The end of easy credit, rising interest rates, and a complex geopolitical situation made 2022 a challenging year for the startup ecosystem. According to Ashish Sharma, managing partner of InnoVen Capital India, the downturn has raised the appreciation for creating sustainable company models.

According to the survey, although the percentage dropped from 92% in 2021, 53% of founders who tried to raise money in 2022 reported having a successful fundraising experience.

In addition, notwithstanding the recent volatility in the equities of listed tech businesses, founders are more and more likely to view a domestic IPO as the preferred exit method. A domestic IPO listing was the most chosen exit strategy for most founders (63%) compared to 58% in 2021.

Hiring takes time, and gender diversity is a problem.

According to the survey, edtech is the most overhyped industry, while agritech and health tech is considered the least exciting. The necessity for virtual classes was drastically reduced as kids returned to school following the outbreak.

About five edtech companies will close their doors in 2022; among them is BYJU, which laid off roughly 2,500 workers in October last year and another 1,000 in January.

The startup industry’s hiring situation has been as bleak as the fundraising winter. Two hundred twenty-eight technology companies laid off over 1.1 lakh people worldwide in January 2023, reports job loss tracker Layoffs Tracker.

The leading tech companies in India during this time were Wipro, GoMechanic, and Swiggy. The poll by Innoven only reveals a few encouraging data on this front. Only 38% of founders, mostly in early-stage companies, predicted a faster pace of hiring in its study, which revealed that hiring is anticipated to slow down.

“Founders of enterprise SaaS and agritech companies had the most optimism regarding employment. The difficulty of increasing gender diversity persists, and trends are unchanged from the previous year. According to Innoven, 67% of organisations have fewer than 20% women in leadership positions, and 38% have less than 10% women on their leadership team.

The most esteemed is Zerodha. Nithin and Nikhil Kamath, the co-founders of the online brokerage company Zerodha, were ranked as India’s most admired startup entrepreneurs by Innoven’s India Startup Outlook Report. Additionally, for the third consecutive year, their business was selected as the most respected Indian startup.

The study’s findings are based on interviews with more than 120 Indian startup founders from various stages and industries, including finance, SaaS, D2C, logistics, e-commerce, health tech, and others.

edited and proofread by nikita sharma