There has been a lot of talent in the start-up circle for an overall funding winter, a period when funding indian startups has proven difficult. Looking back at recent years, 2020 and 2021 were excellent years for funding. Despite the start of COVID-19, there was no significant drop in funding in 2020, so keep an eye on 2021 for funding.
Financial markets, whether public or private, go through cycles, with peaks and valleys. The recent Russia-Ukraine war, energy supply, depreciating GBP/EUR, rising inflation, and other factors, to name a few, are expected to contribute to the risk of recession and an Aries interest rate environment.
As a result, the cost of capital has risen, and investors are hesitant to deploy capital as they once did. Overall, we have reached a NATO situation that is ideal for early or late-stage start-ups. Looking at the last two quarters provides a clear picture. There has been a decrease in both the amount of funding and the number of start-ups funded.
Having said that, the market will always go through cycles, whether it was in 2008-10 or in 2016, when funding levels fell. While we are currently in a downward cycle, we are wondering when we will see this winter.
what do startup do in the meantime?
It is important to note that there has been a record amount of money raised globally and in India. In the United States, venture capital firms raised an amount equal to what they raised in all of 2021 this year in H12022. In India, venture capital funds raised $ 14.1 billion in just H12022. This means that there are a lot of “dry powdered” funds waiting to be deployed.
Venture capital money is “patient money,” meaning it will sit on the sidelines until the right opportunity presents itself.
When we put all of this together, we will see it play out differently depending on the sector and stage of the startups. Due to the IPO being a highly sought-after route for existing investors, late-stage start-ups of this type are seeing internal rounds. Given the track record of recent IPOs and subsequent share prices, there would be no rush for late-stage startups to seek an exit via IPOs. This sub-segment may be the most impacted. It would be critical to ride out this winter period in a sustainable manner.
As a result, layoffs, re-alignment of business plans, projects, and an I repeat, I like meant toward EBIDTA positive/profitability of the business would occur. Overall, a recite recite to reduce the burn rate and lengthen the runway.
Changes would also occur in a seed/series a stage start-up. While there is a lot of dry powder, some sectors will have an easier time getting funding than others. The reason for this could be two fold: the positive/negative outlook on the sectors, and the other being that in some sectors that have received a lot of funding in the last two years, many venture capitalists have already made their bets and are not making new ones.
Start-ups in the Series A/B/C payment could see bridge funding or a flat round because sustains are important. Start-ups have already begun reducing marketing budgets and rationalising workforce to ensure that they survive this lull period. While venture capital list money is patent money, it is likely that capital will be deployed because they will be under pressure to generate returns for their investors. Having said that, the metrics for evolution may change, and the valuation metric will shift from growth at any cost to growth with good profitability/business metrics.
Venture capitalists search for good deals and take their time making good decisions and adding high-quality companies to their portfolio. They would also set up a reserve fund for the existing portfolio company to ensure they made it through this period unscathed. In addition, consolidation and Monday activity would increase.
Where there is a high concentration of similar startups, some will fail due to inability to raise funds or be acquired by large players.
Having said that, it is also well known that unicorns and even high-quality start-ups are created in difficult times. This is something that venture capitalists have known for decades. While the venture capital list would have stricter checks and metrics for people lessons, good quality start-ups would continue to be funded. It is critical for startups to re-align to this and weather the storm. We are confident that those who make it out will be of high quality and have good business metrics.
GST Return Filing in dwarka Delhi