In 2021, India's startup scene experienced an incredible year, with $42B raised across 1,584 deals from eager investors. Unfortunately, the momentum was short-lived due to various macroeconomic uncertainties, the Russia-Ukraine conflict, interest rate hikes, volatile capital markets, and fears of a looming recession.
This resulted in a crash in startup funding in 2022, with only $25B raised. And unfortunately, the outlook for 2023 is not any better according to current data. As the global market experiences a liquidity crunch and massive layoffs, the Indian startup scene is facing its own "winter” alongside multiple banks crashing simultaneously.
The ‘Winter’ is Here and How!
In 2022, the Indian and global startup ecosystems underwent a period of recalibration after a correction in the market's exuberance. Only ~$22B equity infusion was recorded in the first nine months of 2022, compared to the record-breaking ~$42B funding in 2021.
The New Normal in the Startup World
This shift in the market has led to a painful "unlearning" process for many Indian founders who built their perspectives on fundraising and valuations during a highly exuberant market. The past few years may have been a fantasy, and what we're experiencing now could be the new normal.
Venture capital investments slowed down in 2022 as investors took a "wait and watch" approach due to inflation woes, recession fears, rising costs of capital, and elevated levels of uncertainty driven by geopolitical tensions. The pessimism that started with global tech stocks in late 2021 eventually rubbed off on the US private markets and the Indian VC ecosystem.
Despite the decrease in institutional funding, angel investment saw a stark increase. However, investors were focusing more on value plays, a marked shift from last year when growth was the primary focus. As many startups shift towards conserving cash, their growth rates are expected to be negatively impacted.
Insights for Recur Startup Pulse 2023 - What’s Next?
With detailed interviews from over 200 founders and 40 investors by Recur Club, this report illuminates the challenges faced by Indian entrepreneurs and how they are navigating a rapidly evolving landscape. Let’s look at some of the insights that will help founders make informed decisions in their fundraising journeys :
1. According to Recur Club's proprietary data of 150 companies, more than 60% of founders focused on improving efficiencies as a way to manage the impact of the economic downturn.
2. Time remained a significant challenge for founders in raising capital across sectors, with 63% of them being okay to increase CAC and G&A expenses.
3. The median growth of these companies fell to ~48% from 103%, highlighting the severity of the economic impact.
4. Despite the setback, the majority of founders remain eager about growth prospects, but raising capital via equity may not be the way ahead.
5. According to the survey analysis, 81% of founders believe they can accelerate their company's growth in 2023, but ~60% feel that raising equity capital will continue to be a challenge.
6. With equity funding still posing a challenge, founders are exploring alternative sources of financing to prepare for the next phase of their business growth. This includes exploring bank/NBFC loans and other alternative sources of financing.
Despite the obstacles, founders remain optimistic about the future and are ready to adapt to the changing landscape of the Indian startup ecosystem.
If you want to understand the patterns in these uncertain macroeconomic conditions and make informed decisions around raising your next round from alternative sources of financing, grab the full report here!
Read more about the SVB Debacle and learnings for founders from it here