Winter is coming - Start ups need to be cautious.

Only a few months back, start-ups were the apple of the eye for investors. Fundraising was easy and deal-making as swift. India, the third biggest start-up ecosystem after US and China, minted a unicorn almost every week. But a tsunami of global headwinds has buffeted the shores that sustained the high cash-burn start-ups. The blockbuster days of funding have passed. The once abundant liquidity in the hands of big venture capitalists is now trickling fast. Enter the age of runaway inflation and spiralling interest rates in the US- they are having a knock-down impact on start-up funding. Add to this the Russia-Ukraine conflict and the ballistic energy prices, and you realize the crisis has reached its full crescendo.

In a changing landscape, moneybags have turned circumspect. Sequoia Capital which has invested in 30 unicorns in India, including Byju’s, has advised its investee companies to do belt-tightening as investors are cutting down on investments in public and private markets and instead parking funds in bonds.Market intelligence firm CB Insights reported that venture funding to India-based start-ups fell to $3.6 billion in the second quarter of 2022 from $8 billion in the first quarter and over $10 billion a year ago.Industry watchers anticipate more retrenchments as mature and growth-stage start-ups will find the going tough to raise funds.

Investors will look for robust business fundamentals before writing cheques for the start-ups. The propensity for funding will be more for the early-stage start-ups with lower valuations. The growth-stage start-ups need to tighten their frugal belts. Start-ups can survive the funding winter by learning to sustain on leaner budgets. Cutting the flab and reducing cash burn needs to top their agenda. Until this fund crunch cycle reverses, start-ups will have to extend their runway. India is home to 103 unicorns with a total valuation of $335.80 billion (Source: Invest India as of June 29, 2022). This is a compelling growth story of entrepreneurial innovation and job creation. This funding winter may be a cyclical phenomenon. Nonetheless, it has lessons in caution and introspection for start-ups. Start-ups should not let go of the edge and advantage built over the years. The challenge is not just to survive this winter but to stay agile and navigate the seasons ahead.

Source : https://www.financialexpress.com/industry/sme/