ত্বিটরদা শেয়র তৌবিয়ু
The startup funding landscape has rapidly evolved in the past years due to accelerated adoption of digital tools, increased private equity funds in tech companies, increased private market going public and government initiatives supporting startups. In 2017, a total of $13.7 billion was invested into the Indian startup ecosystem across 820 deals, whereas in 2021, the ecosystem experienced a boom with venture capitalists backing the startups with record investments of $42 billion. This, in addition to the rise of 46 unicorns (companies with $1 billion valuations), has further contributed to India’s growth story.
However, in the current times, where the recent announcement by the US Fed on the spike in inflation and hike in interest rates, coupled with the growing geopolitical tension and the impact of the pandemic, the startups are witnessing a funding crunch as the investors are cutting down on investments to startups. As an aftereffect, to withstand the ‘funding winter’, the startups are reducing cash burns, speeding layoffs, and focusing more on generating revenue in their businesses.
Recently, YCombinator, the Silicon Valley accelerator wrote an open letter highlighting the opportunity that downturns in the economic cycle provide to founders to adapt their mindset, plan and ensure the survival of their companies. It also highlighted that the startups may consider cutting costs and extending their ‘runaways’ with the goal of ‘getting to default alive’ i.e., focusing on achieving profitability with current resources before running out of money and ensuring stable cash flow.
Likewise, the Indian Startups may explore other funding channels to ‘extend their runaways’ amid the funding slowdown. Early-stage startups can continue raising investments from Angel Investors or Early-Stage funds as the money flow has not come to a grinding halt for them. As per Inc42’s half-yearly Indian startup funding report, the seed deals during H1 2022 have increased vis a vis the combination of growth and late-stage deals.
To consider an alternate source of investment, while Venture Capital firms, Angel Investors, and Banks are usually the primary choices for startups, other sources such as Micro Venture Capital firms, Family Offices, and Corporate Funds that are also engaging with and supporting startups. Micro VCs are funds with an active fund size of up to $30 million, and they invest primarily in pre-seed and seed rounds. As per IVCA, as of 2021, there are about ~89 micro-VCs in India. Raising funding through family offices may be another source for startups looking for long-term investments. According to a joint report released by 256 Network and Praxis Global Alliance India, family offices have invested more than $5 billion in Indian startups during the last few years.
Interestingly, over the last decade, corporates have started engaging closely with startups as well. Prominent multinational companies, now, have dedicated funds that they invest in those startups which are working in sectors specifically aligned with the corporates’ area of work. Incubators and Accelerators across the country also run programs through which they provide opportunities to their cohorts of startups to pitch to investors and win cash grants.
Beyond private stakeholders in the ecosystem, startups can also explore the opportunities that the Government provides for raising funds. The Startup India Seed Fund Scheme, launched by the Government of India in January 2021 provides financial assistance to startups for proof of concept, prototype development, product trials, market entry, and commercialization. The government also disburses funds through the Small Industries Development Bank of India (SIDBI) Fund of Funds Scheme, which invests in venture capital and alternative investment funds (AIF) that invest in startups. Additionally, Startup India in partnership with various ministries, departments, and corporates conducts innovation and grand challenges, inviting innovative solutions from startups for specific problem statements. The selected cohorts of startups are provided with various fiscal and non-fiscal opportunities including cash grants, market access, investor connect, and pitching opportunities, among others.
To know more about funding, you may explore the Funding Guide.
