Startups face tough times, fund flow may not be easy

NEW DELHI: 2023 proved to be a tough year for startups as investors stayed selective in allocating capital into companies and term sheets were signed only after weighing the ability of firms to deliver profitability . With scarce funding and difficult investor questions being posed around the viability of business models, startups laid off employees, shut cash guzzling verticals, made pivots, while a few players like Dunzo and Koo are struggling to stay afloat.

The New Year is not expected to be widely different for startups analysts see investor sentiment improving in another six to eight months but the bar for investments will continue to be high. "What is not going to change in 2024 is the investor caution . Investors will still ask tough questions before writing cheques.

Indiscriminate funding is not going to happen anymore," said Dipanjan Basu, co founder and partner at Fireside Ventures. In a year where startups like Byju's, GoMechanic and Mojocare unravelled due to poor corporate governance, investors are taking a closer look at various business metrics before betting on firms.

While a company's path to profitability will be key, governance is also going to be a big driver of funding in the years to come. "Today, startups are not even being able to raise internal rounds (funding by existing investors) if they don't have a proper governance framework," said Amit Nawka, partner, deals and startups leader at PwC India.

Startup funding in 2023 hit a seven year low of $8.2 billion even as India focused funds are sitting on unallocated capital worth $20 billion, explaining the growing investor vigilance. In 2022, firms had raised over $24 billion, estimates shared by market research firm Tracxn showed. "At least in the near to mid term, investors do not want to go long on startups.

They will only invest in companies that can offer them good returns in the short term. B2B companies will be more in favour as they have lower cash burn and a better shot at achieving profitability," said Shravan Shetty, managing director at management consulting services firm Primus Partners. More startups are likely to adopt an omni channel strategy in the coming year as they look at ways to turn profitable in a capital efficient way.

"In online, the customer acquisition cost (CAC) is very high. Companies end up spending between Rs 500 Rs 2,000 on one customer depending on the product category. In the offline space, the CAC is lower and it is easier to tap into a wider customer base," said Nawka. In terms of sectors, startups building solutions in areas like agri tech, AI, clean tech, semiconductors and deep tech will continue to garner investor interest.

"This is not only because they mirror the evolving technology landscape but also due to the government's proactive push for semiconductors and deep tech," said Sa'ad Kaleem Shaikh, engagement manager at consulting firm Zinnov. Analysts said certain measures like widening the availability of the pool of domestic capital will help startups as they gear up to navigate the many challenges that the next year may bring forth.

"We need to enable more public sector entities, insurance companies to allocate a certain part of capital to alternate investment funds. ," said Basu. FOLLOW US ON SOCIAL MEDIA Visual Stories Previous 10 Most Affordable Cities in India to Buy a House business Most Visited Monuments in India business The Pros and Cons of Investing in Value Stocks business Investing in Small Cap Stocks: Top 10 Tips for Absolute Beginners business 10 Ways to Earn Money Online by Selling Physical Products business Richest Cricket Players Across the World business 10 Things You Didn’t Know About Warren Buffett’s Investment Process business Priyanka Chopra Net Worth: Know How Rich is Global Actress business Top 10 Benefits of Investing in Small Cap Stocks business 15 Best Tax Saving Schemes in India business Next 1 2 3 Elections Chhattisgarh CM News MP CM News Rajasthan Election Results MP Election Result 2023 Chhattisgarh Election Result Mizoram Election Result TOP TRENDS India Covid Cases ISRO XPoSat launch Horoscope Today David Warner Happy New Year 2024 Wishes PM Modi Ayodhya Visit.