According to the International Monetary Fund, India will be one of the fastest-growing economies in 2023, with the overall economy rising towards $5 trillion in gross domestic product (GDP) by 2030. A major part of this growth will be driven by Indian start-ups, especially in the tech-enabled segment.
Conversely, 2022 was quite challenging for start-ups due to massive layoffs, a drop in valuations and lower funding, which is colloquially called the funding winter.
According to the Indian investors, the decline in funding in 2022 was a natural cycle that provided a platform for emerging cutting-edge business models. The market correction also made it more important to consider how profitable start-ups are.
Specifically, entities with the right product-market fit were able to gradually increase their revenues and make significant progress towards their profitability goals. Sectors like ed-tech and finance, which experienced significant natural growth due to the pandemic, now face additional challenges as their development has stalled.
Similarly, some start-ups have yet to receive funding in the past two years. Uncertainty is growing as a result.
The recent crises have greatly impacted global business strategies and operations.
During the current situation, start-ups must more strategically and effectively remove those roadblocks and close funding deals.
Here is a list of strategies that could help start-ups close deals.
Comprehensive Business Plan
It should be both thorough and realistic to enhance the quality of your business plan and increase the likelihood of success. This includes a detailed breakdown of all expected costs and revenues, a complete list of expenses, and innovative strategies to navigate the current business environment. To attract investors, demonstrate how their investment can yield returns, even amidst funding freezes.
During these times, it is crucial to focus on cash flow management. Keeping a close eye on spending and making necessary reductions will ensure sufficient funds are available to operate the business effectively. By prioritising cash flow management, you can help your start-up to weather the funding winter and come out stronger on the other side.
Alternate Potential Investors
Start-ups can remove roadblocks and secure funding by actively contacting potential investors. Building a strong network of potential investors is crucial.
Founders need to focus on investors that have invested in similar start-ups in the past and make sure to stay in touch with them regularly. It is essential to provide updates on the company's progress and proactively share any new information that could pique their interest.
Get involved in relevant online and in-person communities and industry seminars, as these events can provide resources to help you find potential investors.
Diversify Your Funding Sources
During a funding winter, diversifying your funding sources is essential. Try to secure funding from various sources, such as venture capitalists, angel investors, government grants, and crowdfunding platforms.
Having multiple sources of capital ensures that your start-up is not overly reliant on any source. Craft a compelling story and tailor your pitches to each individual investor.
While venture capital and angel investors are often the go-to sources of capital for start-ups, there are many other sources of capital you can tap into during the challenging era. These include government grants, private equity investments, and crowdfunding platforms.
Founders must also pay close attention to the legal and compliance aspects of fundraising. It is crucial to be knowledgeable about the laws and regulations in their industry to avoid any unnecessary problems.
Careful consideration must be given to all associated partners, especially in financial services, to ensure that the start-up's interests are protected. Providing detailed and accurate financial and other relevant documents, including relevant paperwork, is critical when applying for funding.
Keep Your Sanity
Finally, being patient and resilient during the fundraising process is important. It is normal to face roadblocks, particularly in the current environment of lower valuations. Avoid getting frustrated and focus on adapting and evolving new strategies and plans.
Upon looking to fundraise during this time, entrepreneurs should proactively remove roadblocks to get their start-ups off the ground. Utilising helpful fundraising resources can assist in breaking down barriers to finding the right investor.
Additionally, relying on effective networking and actively engaging can also open up opportunities to increase the chances of obtaining favourable terms and valuations. Taking an honest and insightful look into current market conditions as well as understanding investor motivations, is also necessary for success in raising funds.
At the end of the day, through perseverance and dedication, entrepreneurs can remove roadblocks and raise the necessary funds to launch their start-ups, even amid a funding winter.
-Subhashis Kar, founder and CEO of Techbooze