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Venture Capital: The Funding Winter To Be Looked As Learning Curve By Start-Ups

Building strong corporate governance practices, maintaining transparency, and effectively communicating their value proposition to potential investors could help start-ups navigate funding winter challenges

Venture Capital: The Funding Winter To Be Looked As Learning Curve By Start-Ups

Outlook Start-Up Desk

POSTED ON November 24, 2023 1:39 PM

It's concerning to hear that Indian start-up funding has experienced such a significant decline in H1 2023, with a 72 per cent decrease in funding amount and a 49 per cent decrease in deal count. These statistics indicate a challenging period for the Indian start-up ecosystem. The factors that can be attributed for this slide, including the anticipated global recession, corporate governance issues within Indian start-ups, and market uncertainty. 

The anticipated global recession can create an environment of cautious investment as investors become more risk-averse in uncertain economic times. Corporate governance lapses in few notable Indian start-ups have eroded investor confidence, leading to decreased investment interest. Such incidents can raise concerns about the overall health and sustainability of start-ups, making investors more cautious in their decisions. 

The Indian Tech Start-up Funding Report H1 2023 appears to be a valuable resource for understanding the dynamics of the Indian start-up ecosystem during this challenging period. The report's insights into mega deals, median ticket sizes, unique investor participation, and survey results from key stakeholders in the investment community can provide a comprehensive view of the situation. 66 per cent drop in funding on year-on-year basis, first half saw 950 plus unique investors backed over 440 start-ups. Together we could see US $ 5.4billion worth of capital raised. 

During the first half of 2023, at the seed stage funding total of 233 deals were closed by raising the capital of US$ 479million. 

During such funding winter, start-ups might need to focus on demonstrating their resilience, adaptability, and long-term viability to attract investor’s interest. Building strong corporate governance practices, maintaining transparency, and effectively communicating their value proposition to potential investors could help start-ups navigate these challenges. 

It will be interesting to see how the Indian start-up ecosystem evolves over the coming months and whether these trends continue or begin to reverse as the global economic landscape stabilizes. Start-ups at this stage require preparation to figure out how much funds to raise and how to utilise these funds in optional fashion. 

Today start-ups are being asked to go back to the drawing board and review the operational model, marketing, and financial viability in the long run. 

Securing investment for start-ups can be challenging but possible. Here are some strategies that start-ups can consider improving their chances of securing funding: 

1. Plan ahead: Start-ups should anticipate their funding needs well in advance and plan accordingly. It's crucial to clearly understand the financial requirements for the winter season and create a comprehensive business plan highlighting the potential return on investment. The basics of budgeting and cash flow come into the picture. Entrepreneurs need to think and act as traditional business people when the cash flow is concerned. 

2. Bootstrap: Prioritize self-funding and cost-cutting measures to minimize the need for external funding. Demonstrating that the start-up is operating efficiently and utilizing its resources effectively makes it more attractive to potential investors. Also, the bootstrapped start-up has the flexibility to deal with potential investors. 

3. Seek angel investors and venture capitalists: Angel investors and venture capitalists are individuals or firms that provide funding to start-ups in exchange for equity or a stake in the company. Research and identify investors who have a particular interest in the start-up's industry or niche. Craft a compelling pitch and reach out to them with a clear value proposition. VC possesses the appetite to take risks on new ideas and future solutions. 

4. Government grants and programs: Research government grants, subsidies, and programs that are available for start-ups. Central as well as several state governments 

have taken initiatives to support entrepreneurship and innovation, offering financial assistance, mentorship, and resources. Today the support of Government grants and incubation hubs from educational institutions are of great help for high-stakes innovative start-ups. 

5. Incubators and accelerators: Joining an incubator or accelerator program can provide start-ups with access to funding opportunities, mentorship, networking events, and valuable resources. These programs often have connections with investors and can help start-ups refine their business models and pitches. 

6. Strategic partnerships and corporate sponsorships: Seek partnerships with established companies in the industry or related sectors. Collaborating with larger organizations can provide start-ups with access to funding, mentorship, distribution channels, and market validation. 

7. Network and attend industry events: Networking is essential in the start-up ecosystem. Attend industry events, conferences, and meetups to connect with investors, mentors, and other entrepreneurs. Building relationships and leveraging your network can lead to potential funding opportunities. 

Remember, securing funding takes time and persistence. Start-ups should be prepared to face rejections but should continue refining their pitch and seeking opportunities to connect with investors who align with their vision and goals. This funding winter is testing times for start-ups to be patient enough to get right investor, build strength in terms of right products mix, distribution strategy, services as well work on the ethical code of conduct for start-up.

- Kamal Bansal, managing director GVFL

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