Startups face tough times: Startups face tough times, fund flow may not be easy
New Delhi: 2023 proved to be a tough year for startups as investors remained selective in allocating capital into companies and term sheets were signed only after assessing the firms’ ability to deliver. profitability,
With scarce funding and tough investor questions around the feasibility of business models, startups have laid off employees, shuttered cash-guzzling verticals, pivoted, while some players like Dunzo and Koo are struggling to stay afloat. Are.
Analysts don’t expect the new year to be much different for startups investor sentiment There will be improvement in the next six to eight months but the level of investment will remain high. “What is not going to change in 2024 is investor caution, Investors will still ask tough questions before writing the check. “Indiscriminate funding is not going to happen anymore,” said Dipanjan Basu, co-founder and partner at Fireside Ventures.
In a year where startups like Byju’s, GoMechanic and MojoCare went bust due to poor corporate governance, investors are taking a closer look at various business metrics before placing bets on companies. While the path to profitability will be important for a company, governance is also going to be a big driver of funding in the coming years. “Today, startups are not able to raise even internal rounds (funding by existing investors) if they do not have a proper governance structure,” said Amit Navka, partner, deals and startups leader, PwC India.
startup funding It hit a seven-year low of $8.2 billion in 2023, while India-focused funds sit at $20 billion of unallocated capital, reflecting growing investor caution. Estimates shared by market research firm Traxon suggest that companies could raise more than $24 billion in 2022. “At least in the near to mid-term, investors do not want to invest in startups for the long term. They will only invest in companies that can give them good returns in the short term. B2B companies will be more in their favor because they have “Lower cash burn and better chance of achieving profitability,” said Shravan Shetty, managing director at management consulting services firm Primus Partners.
More startups are likely to adopt omni-channel strategies in the coming year as they look for ways to become profitable in a capital-efficient manner. “In online, the customer acquisition cost (CAC) is very high. Companies spend between Rs 500 to Rs 2,000 on a customer depending on the product category. In the offline sector, the CAC is lower and it is easier to take advantage of a wider Customer base,” Nwaka said.
In terms of sectors, startups building solutions in areas such as agri-tech, AI, clean tech, semiconductors and deep tech will continue to attract investor interest. “This is not only because they reflect the emerging technology landscape, but also because of the government’s active push for semiconductors and deep tech,” said Saad Kaleem Shaikh, engagement manager at consulting firm Zinnov.
Analysts said some measures such as increasing the availability of domestic capital pool will help startups as they prepare to tackle the many challenges that lie ahead in the next year. “We need to enable more public sector entities, insurance companies to allocate a certain portion of capital to alternative investment funds,” Basu said.
With scarce funding and tough investor questions around the feasibility of business models, startups have laid off employees, shuttered cash-guzzling verticals, pivoted, while some players like Dunzo and Koo are struggling to stay afloat. Are.
Analysts don’t expect the new year to be much different for startups investor sentiment There will be improvement in the next six to eight months but the level of investment will remain high. “What is not going to change in 2024 is investor caution, Investors will still ask tough questions before writing the check. “Indiscriminate funding is not going to happen anymore,” said Dipanjan Basu, co-founder and partner at Fireside Ventures.
In a year where startups like Byju’s, GoMechanic and MojoCare went bust due to poor corporate governance, investors are taking a closer look at various business metrics before placing bets on companies. While the path to profitability will be important for a company, governance is also going to be a big driver of funding in the coming years. “Today, startups are not able to raise even internal rounds (funding by existing investors) if they do not have a proper governance structure,” said Amit Navka, partner, deals and startups leader, PwC India.
startup funding It hit a seven-year low of $8.2 billion in 2023, while India-focused funds sit at $20 billion of unallocated capital, reflecting growing investor caution. Estimates shared by market research firm Traxon suggest that companies could raise more than $24 billion in 2022. “At least in the near to mid-term, investors do not want to invest in startups for the long term. They will only invest in companies that can give them good returns in the short term. B2B companies will be more in their favor because they have “Lower cash burn and better chance of achieving profitability,” said Shravan Shetty, managing director at management consulting services firm Primus Partners.
More startups are likely to adopt omni-channel strategies in the coming year as they look for ways to become profitable in a capital-efficient manner. “In online, the customer acquisition cost (CAC) is very high. Companies spend between Rs 500 to Rs 2,000 on a customer depending on the product category. In the offline sector, the CAC is lower and it is easier to take advantage of a wider Customer base,” Nwaka said.
In terms of sectors, startups building solutions in areas such as agri-tech, AI, clean tech, semiconductors and deep tech will continue to attract investor interest. “This is not only because they reflect the emerging technology landscape, but also because of the government’s active push for semiconductors and deep tech,” said Saad Kaleem Shaikh, engagement manager at consulting firm Zinnov.
Analysts said some measures such as increasing the availability of domestic capital pool will help startups as they prepare to tackle the many challenges that lie ahead in the next year. “We need to enable more public sector entities, insurance companies to allocate a certain portion of capital to alternative investment funds,” Basu said.
