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58% startups believe fund-raising will get tougher in 2023, finds survey

The survey-based outlook report also found that start-up founders are increasingly looking towards a domestic IPO as the likely mode of exit, despite the recent volatility of public market tech companies.

February 09, 2023 / 05:17 PM IST
Representative image.

Representative image.

Venture debt firm InnoVen Capital in the eighth edition of its ‘India Startup Outlook Report’ said that 58 percent of startup founders expect 2023 to pose more challenges vis-à-vis funding. The startup outlook report revealed that only 53 percent of the founders said they had a positive fundraising experience (71 percent of those who attempted to raise funds), down from 92 percent in 2021.

“Founders expect this year to be challenging, with 58 percent of them expecting a tough fundraising environment to be tougher in 2023,” the report added.

The ‘India Startup Outlook Report’ is based on insights gathered from over 120 startup founders across stages and sectors such as fintech, SaaS, D2C, logistics, e-commerce and health tech among others.

Also read: FM Nirmala Sitharaman interview: No funding winter, funds waiting to see more innovative startups

Commenting on the findings of the report, Ashish Sharma, Managing Partner at InnoVen Capital India, said: “The 2022 was challenging for the startup ecosystem with an end to cheap money, rising interest rates, and a challenging geopolitical environment. The positive aspect of the slowdown has been an increased appreciation for building sustainable business models.”

According to the InnoVen Capital report, for the first time in seven years (since the inception of the survey), founders revealed a higher bias for profitability over growth. As many as 55 percent of the founders stated profitability as a bigger focus area, compared to only 17 percent in 2021. Further, 19 percent of the founders claimed to be EBITDA profitable, while 62 percent aimed to turn EBITDA profitable in the next two years, up from 51 percent in 2022.

Also read: Startup funding in India drops 33% to USD 24 billion in 2022: Report

The survey-based outlook report also found that start-up founders are increasingly looking towards a domestic IPO as the likely mode of exit, despite the recent volatility of public market tech companies. Majority of founders (63 percent) chose a domestic IPO listing as the most preferred exit option compared to 58 percent in 2021.

As for hiring plans, most founders expected it to slow down, with only 38 percent of them expecting a higher pace of hiring predominantly in early-stage companies. Enterprise SaaS and agri-tech founders were the most bullish on hiring. The survey also highlighted that hiring good talent is still a challenge for founders.

Start-up funding set to rebound rapidly in India when policy shocks end, says RBI research

Also, improving gender diversity continues to be a challenge and trends remain largely in line with last year. The survey revealed that 67 percent of the companies have fewer than 20 percent women in leadership roles and 38 percent had less than 10 percent women in their leadership team.

An overwhelming majority (85 percent) of founders identified that focusing on more sustainable business models has been the most important impact of the current funding slowdown. Tightening funding environment has also led to an increased focus on profitability and unit economics.

Despite the market slowdown, most founders are optimistic about raising their next round of capital at a higher valuation with 75 percent of respondents expecting a higher valuation than their last round.

Fintech startups are the most bullish of being able to raise an up-round at 96 percent.

As per the report, edtech is regarded as the most overhyped sector, while health tech and agri tech are the most under-hyped ones.

For the third consecutive year, Zerodha emerged as the most admired Indian startup among founders, with the Kamath brothers emerging as the most-liked founders.

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Moneycontrol News
first published: Feb 9, 2023 05:15 pm