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Startup founders find it difficult to raise funds, investors step back
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IANS | 04 Mar, 2023
The economic turbulence of 2022 has entered 2023, even getting worse,
and startup founders are finding it all the more difficult to raise
funds amid the global macro-economic conditions.
Amid a
deepening funding winter, only 53 per cent of startup founders had a
positive fundraising experience (71 per cent of those who attempted to
raise) in 2022, down from 92 per cent in 2021.
Startup founders
expect this year to be challenging, with 58 per cent of founders
expecting a tough fundraising environment, according to a recent report
by InnoVen Capital, Asia's leading venture debt firm.
"The year
2022 was challenging for the startup ecosystem with an end to cheap
money, rising interest rates and a challenging geopolitical environment.
The positive aspect of the slowdown has been an increased appreciation
for building sustainable business models," said Ashish Sharma, Managing
Partner, InnoVen Capital India.
Fintech startups in India raised
$5.65 billion in 390 rounds last year, a massive drop of 47 per cent in
terms of funding amount and 29 per cent in the number of rounds when
compared to 2021.
This drop in funding can be attributed to the
decline in late-stage funding from $8.3 billion in 2021 to $3.7 billion
in 2022, a drop of 56 per cent, according to data provided by global
software-as-a-service (SaaS)-based market intelligence platform, Tracxn.
Fintech
startups recorded 13 funding rounds of $100 million+ in value in 2022,
which is a massive drop of 50 per cent, from 26 rounds in 2021.
Only four startups in India's fintech sector received unicorn status in 2022, far lower compared to 13 new Unicorns in 2021.
"The
country is currently experiencing a funding winter. Growing inflation
and macroeconomic tensions have made the investors step back from making
big investment decisions," the Tracxn report said.
In 2023, the tightening funding environment has also led to an increased focus on profitability and unit economics.
"While
both growth and profitability are important, for the first time in
seven years, founders had a higher bias for profitability over growth.
Around 55 per cent of founders cited profitability as a bigger focus
area in 2023, compared to only 17 per cent in 2021," the InnoVen Capital
report said.
Startup founders are also increasingly looking
towards a domestic IPO as the likely mode of exit, despite the recent
volatility of public market tech companies.
As Indian startups
face turbulence in the global funding winter, experts said they need to
reserve cash, create a long-term goal and adopt a culture of customer
feedback to survive in 2023.
According to Ritesh Malik, Director, Alliance for Digital India Foundation (ADIF), startups must hear back from their customers.
"The
more you hear from your customers, the more you will be able to
understand their changing needs. And the more your product becomes
dynamic, you constantly change that product to the whims and fancies of
the customer," he told IANS.
Ravish Naresh, CEO and Co-founder of
Khatabook, said that there is a stronger acknowledgment of Indian
startups' role in solving core problems of emerging economies to bridge
the socio-economic gaps.
"This year, our primary aim is to turn
profitable and scale up the digital lending offerings to meet the unmet
credit demand of Indian MSME businesses. We are optimistic about the
Indian economy and its opportunities for the startup ecosystem," he
said.
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As on 13 Aug, 2022 |
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