Following a record year in 2021, investment in India's start-up sector has entered a "funding winter," as cautious investors are asking more difficult questions about the companies' prospects for profitability and valuations. According to Tracxn, a start-up data platform, major international investors like Softbank, Tiger Global, and Sequoia Capital made sizable checks for well-established start-ups. In order to learn more about it, read the article below.
What Exactly Is Winter Funding?
To cut to the chase, there has been a significant increase in VC funding for Indian businesses over the past few years. Even analysts called the valuations "unrealistic." As a result, companies were given the freedom to prioritise quick expansion above profitability thanks to the abundant funding. They hired lots of people and lavished them with benefits in order to realise these impossible goals. All of these circumstances unavoidably produced a sour mixture of financial burn (and even caused a low-key talent war).
Most affected startups in the country
Byju’s
Tracxn
PwC's
Byju's, the most valuable startup in India, is implementing an optimisation plan that will result in the termination of approximately 2,500, or 5%, of its workforce. In 2022, other startups similarly reduced their employee levels. 1,600 people were let go by Blinkit, 1,000 by Unacademy, and more than 700 by Vedantu.
Neha Singh, a co-founder of Tracxn, cites the slowdown as being caused by global macroeconomic conditions, particularly the worries about a worldwide recession. Singh asserts that the financial slowdown in India is anticipated to last for the following 12 to 18 months and that its consequences would only worsen over time.
Early-stage start-ups, according to PwC's India Startups Leader Amit Nawka, would likely find it easier to obtain money because they are often better protected from market swings than late-stage agreements.
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How badly India is being affected by funding winter?
Entrepreneurial circles are quite concerned about the abrupt shift in the fortunes of India's startup environment in recent months. Up until the majority of 2021, the biggest investors in the world courted Indian start-ups. The greatest venture funds and private equity companies competed for a piece of the Indian start-up pie, propelling numerous businesses to unicorn status. As a result of the frenzied pace of investment in 2021, the nation witnessed the birth of up to 42 unicorns during the year, and billion-dollar valuations started to become the norm. In June 2022, investors and start-up circles are debating how Indian start-ups should respond to what is perceived as a threat.
Global factors—including the crisis in Ukraine, pressures on global inflation, and a slowdown in the public markets where tech businesses saw their stocks crash—have proven to be a deadly concoction that is having a significant impact on Indian start-ups. In addition, claims of financial wrongdoing and corporate governance failures by some start-ups are adding to the already overwhelming list of difficulties.
Funds in the private markets have dried up as a result of the biggest investors suffering losses due to the collapse in global tech stocks on the public markets, which has caused major issues for several Indian start-ups. Hurried investors are currently delaying fundraising rounds significantly, conducting thorough due diligence, and demanding a clear path to profitability. As a result, venture capital transactions in India decreased.