Funding Winter Drags On; Plummeted By 79% Since January: Should Startups Celebrate Or Mourn?
Does Startup Funding deserve to die, like the Silicon Valley Bank did? Or should investors look into startups from a whole new perspective and wider angles? Would the funding winter stop further startups from rising in India? Read on to know better.
Every startup has a different story to tell. It waves through various stages of creation, ideas, launch, innovation, growth, teamwork, and funding, flooding in an all new bunch of undeterred entrepreneurs.
Entrepreneurship is supercharged with cheap capital, growing digitization, upswing in internet penetration, and supportive government policies of the country.
The question arises out of the 92,683 recognized startups in India, how many are existing in a cash-starved state, owing to the market downturns, and should they be really worried with the funding figures tailing off?
Here’s a look into the state-of-affairs of the startup segment and its ongoing war for funding.
Tale Of Prolonged Funding Winters
It is an alarming revelation that the first five months into 2023 saw a dismal investment lag into the Indian startups, a million miles away from what it delivered last year, choking up to as low as one-fifth of the previous level.
Funding Winters has not just invaded India, but also plunged in worldwide in as early as 2022, owing to the geopolitical and macroeconomic tight spots.
Higher inflation rates, Russo-Ukrainian War, hike in interest rates, cooling of digital economy post COVID-19 pandemic, and the latter-day demise of Silicon Valley Bank have all added to the woes at the global level.
The Indian subcontinent has been attacked in severe funding downturns by liquidity crunches with limited availability of capital; risk-averse investors opting sustainable business models against startups for rapid growth; changes in policy of foreign direct investment guidelines; stricter scrutiny and regulatory frameworks leaving investors hesitant towards startup funding; and last but most important economic uncertainties coming through slower growth of GDP, inflation surge, and pandemic disruptions.
Year-to-Year Evaluation
The funds drawing in from venture capitals and private equity had winged its way to 15.7 billion dollars in January-May 2022, while the same period in 2023 saw a staggering downfall to 3.3 billion dollars.
The PE/VC funding to Indian startups witnessed a gigantic fall by 79 per cent, whereas the funding amount registered a year-on-year crash by 44 per cent.
The number of deals observed in the first five months of 2023 staggered, with May 2023 exclaiming a shocking halving decline, compared to last year statistics.
Last May saw the participation of investors across 108 funding rounds, investing around 1.68 billion dollars. Despite that, this year May month beheld only 53 funding round for the investors, totaling an investment of just 948 million dollars.
In comparison of the January-May months of 2022 and 2023, the funding rounds slashed from 613 to 247 for the startups. Startups in its late-stage and growth stage also followed the same suit, with 105 deals securing 2.75 billion dollars in 2023, in contrast to 8.9 billion dollars across 189 funding rounds in 2022.
The early stage deals hovered around hardly 549 million dollars with 142 funding rounds in first five of 2023, claiming a fall of 54 per cent total deals from last year’s average of 310, and a 56 per cent downgrade in funding from 1255 million dollar during the same period in 2022.
Although April month managed to spot an uptick with 46 deals rounding up about 342 million dollars, yet it was still low as compared to the numbers in 2022.
Severe Blow For The Startups
The Funding Winter Crisis continuing its sojourn in the nation has left many startups uncertain about it future, thanks to being threatened on their survival and growth prospects.
Grappling with a reduction in investments, startups are now persistently pressed with economic growth concerns, strongly impacting their innovative landscape as well.
Alternative strategies may now have to dash in for the startups stuck with the crash of both funding and deals, and different modes of sustaining, such as seeking transformations in business models and forging consolidations should be caught hold of.
Who Can Weather The Funding Crisis?
Indian startups can be back on track and gain momentum as previous years after stability takes over the global startup space and is restored to its full measure.
It is true that every stormy season teaches something vital before scuttling off, and in that vein the funding winter imparts a demanding call for self sustainability.
Startups which only concentrated on external funding have less chances of survival than who gave more weightage to profitability and revenue generation within their entity.
Another bright spot can be viewed as paving a way for building an unbeatable team as young minds appreciate stability over compensation after witnessing massive layoffs and hard times. Acquiring a team as well as stakeholders for the long haul, at least 3 years, can help beat the short-term strategies with long-term growth plans.
No news is perceived as bad news as long as it can be routed to a good channel. Startups in India are mostly focusing on edtech and fintech, that is highly optimized and acknowledgeable, even so penetrating into the need of the hour such as climatech and healthtech can be considered as a massive room to maneuver.
Another way to shake out is to seek energies and cost efficiencies, in contrast to the struggling startups, by teaming up for mergers and consolidations that could reshape the ecosystem of Indian startups.
The Funding Winter has swept in with the survival of the fittest agenda, and those startups which sync to the beat can weather the crisis much ahead of the remaining and stand tall even amidst the global economic recession.
Proofread & Published By Naveenika Chauhan
