Startups need better business model to tide over funding woes: Expert

Startups need to come up with more economically sustainable business model and tighten their belts to tide over situation created by drop in funding amid global economies facing disruptions, opined players in the segment.

A PwC India report recently said that the Indian startup ecosystem reported the lowest six-month funding in the last four years in the first half of calender year (CY) 2023 at USD 3.8 billion across 298 deals — a decline of nearly 36 per cent as compared to H2 CY22 (USD 5.9 billion). Rohit Arora, Founder & CEO, Biz2Credit, said the slowdown in funding, influenced by economic conditions and enterprise valuation impact, presents challenges for startups seeking significant up-rounds. He said the foreign investments in India’s startups have significantly dropped by 72 per cent in 2023.

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“However, amidst this landscape, the resilience of the domestic fintech industry shines through, with investors remaining confident in its disruptive potential. “As we navigate these dynamics, it becomes crucial for investors to prioritize post-investment strategies and for startups to focus on sustainable unit economics,” he said. Akhil Saraf, Founder and CEO of proptech firm Reloy, said that in last couple of years, global economies have experienced large scale disruptions, which has shaken up the VC PE world. “Investors are now approaching deals with caution due to past experiences with unsuccessful ventures. High cash burn ventures are struggling in this macro environment.

“However, our experience with fundraising has been different. Our round was filled very quickly leading me to believe that there is very large amounts of dry powder available for such businesses,” he said. Akshay Munjal, Founder, and CEO at Hero Vired, opined that the intense competition within the Indian edtech sector is driving a wave of innovation and operational efficiencies, as companies actively seek to reduce customer acquisition costs, improve customer experience, and enhance learner outcomes, ultimately elevating the overall quality of education. “However, the sector is not without its challenges, as a “funding winter” looms over companies that have failed to innovate and have operational losses. Despite the hurdles, we expect consolidation across the sector,” Munjal added.

The government has established Fund of Funds for Startups (FFS) with corpus of Rs 10,000 crore, to meet the funding needs of startups. It has not only made capital available for startups at early stage, seed stage and growth stage but is also playing a catalytic role in terms of facilitating raising of domestic capital, reducing dependence on foreign capital and encouraging home grown and new venture capital funds. It has established the Credit Guarantee Scheme for Startups for providing credit guarantees to loans extended to DPIIT recognised startups by banks, NBFCs and Venture Debt Funds (VDFs) under SEBI registered Alternative Investment Funds. Besides, over 50 regulatory reforms have been undertaken since 2016 to enhance ease of doing business, ease of raising capital and reduce compliance burden for the startup ecosystem.