By Ms Saloni Jain, Founding Partner, Sunicon Ventures
In the bustling domain of startups, the phrase “funding winter” has become a common topic of discussion. This period is characterized by a reduction in the amount of money flowing into startups and a subsequent impact on valuations. At first glance, it might seem like a downturn for the ecosystem, but could there be a silver lining within this funding winter?
It is crucial to disclose the layers of this situation. The macro reasons, such as the Ukraine-Russia war and challenges faced by U.S. startups, contribute to a more sentimental atmosphere. On the micro level, reasons like startups failing to meet growth expectations, global venture capitalists exiting the country, and investors encountering difficulties in securing exits add depth to the scenario.
While macro reasons carry an emotional weight, it’s the micro reasons that demand a closer inspection.
Chasing the Valuation Game
One of the underlying issues leading to the funding winter is startups engaging in the relentless pursuit of high valuations. In this race, many startups ended up burning through substantial amounts of capital to acquire customers, often neglecting the nuances of the Indian market and sentiment. This led to a scenario where startups lost sight of their vision and quality. However, the funding winter serves as a corrective measure, prompting a shift towards a more secure future. This correction encourages both startups and investors to adopt a more realistic, well-researched, and cautious approach. It sets the stage for good practices that shape the industry for the better.
Rise of Domestic Investors
The departure of global investors during the funding winter wasn’t just a retreat; it highlighted their limitations in understanding and navigating the intricacies of the Indian market. While global investors could provide capital, startups required more than just financial support. This shift has paved the way for domestic investors to take center stage. Their performance during this period demonstrates a significant contribution not only to valuation but, more importantly, to the substantial growth of startups. This shift towards local investors is a positive indicator for the future, fostering a more symbiotic relationship between investors and startups.
Clearing the Exit Strategy Path
The funding winter brought its share of challenges, with money getting stuck and hindering fresh investments. However, adversity often sparks innovation. This hurdle has led both investors and founders to plan their exit strategies more clearly, avoiding the pitfalls of overvaluation that could complicate exits. This newfound clarity in exit planning ensures a smoother journey for both investors and startups, contributing to a healthier and more transparent ecosystem.
In conclusion, while the funding winter poses challenges, it emerges as a blessing in disguise for the startup ecosystem. It serves as a corrective phase, promoting realism, research-driven decisions, and a cautious approach. As startups and investors navigate through this period, the positive transformations it brings are laying the foundation for a more resilient and promising future.
