After a year of humiliating lows for the startup environment, founders are feeling cautiously optimistic. The financing winter may not be over, but there is still time to tap into knowledge and good economic sense in 2023.
Prime Minister Narendra Modi designated January 16 as National Startup Day a year ago, while meeting with companies at the ‘Startup India Innovation Week’ organized by the Department for Promotion of Industry and Internal Trade (DPIIT).
India had just exited the 2021 highs, adding a record 44 unicorns and raising $62.7 billion in private equity and venture capital investments, and it appeared that startups could do no wrong.
Then came the 2022 financing slowdown, which was caused by global macroeconomic difficulties. Despite this, India will have 22 unicorns by 2022, making it the world’s third-largest startup ecosystem, trailing only the United States and China. The issue on everyone’s mind right now is: what will happen in 2023?
“I believe the upcoming year will be one where profitability and scalability will be a big priority for investors,” stated Saahil Goel, Co-founder & CEO of Shiprocket (which became a unicorn last year). The vast financing splurge has come to an end, which indicates the ecosystem may face a worsening of this funding winter in 2023.”
Startups should “revisit the basics” and “strengthen the foundations,” according to Goel. “A straightforward and unambiguous road to success, as well as sustainable business models, will undoubtedly work,” he stated.
The majority of founders feel that irresponsible expansion at any costs must come to a halt. Instead, startups must concentrate on steady, organic growth.
“The overall decline in access to finance has been looming large,” said Sampad Swain, CEO of Instamojo, “and so, the need of the hour is to go into sustained business models by cutting direct and indirect costs that can bring back attention on the entire cost of ownership” (TCO). While mature firms are expected to increase overall margin structures and cost efficiency, early-stage startups must move the needle in driving topline growth through organic rather than inorganic avenues such as marketing and so on.”
Yes, startups are difficult, and after mass layoffs in 2022, many young people are choosing out in favor of more secure professions. However, entrepreneurs believe that startups are still important for employment generation.
“The ecosystem has reached a stage where startups have become a serious contender for jobseekers and are also going to play a pivotal role in helping India achieve its goal of becoming a $5 trillion economy by 2025,” said Anmol Singh Jaggi, CEO and Co-founder of electric cab-hailing service BluSmart. In that context, it is critical to consider startups as any other business and to encourage the wealth creation opportunities [they create] for youth.”
Many entrepreneurs believe that consolidation will be a major issue this year. Given the scarcity of free-flowing venture capital, many small- to mid-stage start-ups may find it difficult to secure funds on favorable terms, forcing them to sell out to larger competitors or even corporations.
“The funding shortage will drive greater M&A activity in 2023 as both founders and investors may race to defend existing valuations,” said Vidyarthi Baddireddy, CEO and Co-founder of PickMyWork. Or, due to the funding winter, firms would have to restructure their costs in order to improve cash flow and prepare for down rounds in 2023.”
“We should also keep in mind that investors like to deposit their money where the burn is low and the invested cash may be returned in a reasonable amount of time,” he added.
While there are some concerns about fundraising, considering that the consequences of the global slowdown are still being felt in India, the overall atmosphere is one of cautious optimism. “Indian start-ups have demonstrated extraordinary tenacity, resilience, and adaptability in adopting technology. “A progressive policy environment, plans for 5G infrastructure, and the strengthening of digital payments will fuel this growth,” noted a Dream11 (one of India’s lucrative unicorns) spokeswoman.