In 2021, the startup funding in India peaked at $37 billion. After this peak, however, it steeply decreased in the following time period. In the January to July 2023 period, the number was $4.4 billion. This reduction is due to the gloomy macroeconomic environment of the world. But the fact is startups are finding it hard to raise funds. But this is the right time to introspect for startups. This, in fact, is a blessing in disguise for the startup ecosystems.
Profitability over growth
Growth is good, but growth at any cost is certainly not. With the difficulty of accessing capital in the market, it is essential for startups to be having liquid cash, which comes from strong cash flows and profits. When the capital access is easy, “growth” is prioritized over the profits. Though this can work, it is a high-risk and high-reward game. With startups forced to focus on profits over growth, it results in good financial management and long-term success.
Stronger business models
Startups are forced to introspect on the current business models. If the current models are not working they must be changed. During difficult times, only the models with a clear roadmap towards profitability will be relevant. This will eventually lead to stronger and more sustainable companies.
Innovation
Necessity is the mother of all inventions. Building businesses in the limited availability of resources leads to innovations that can lead to advantages on the top line as well as the bottom line of a company.
With a more competitive funding landscape, startups may be motivated to innovate more rigorously and differentiate themselves from the competition. This can lead to the development of more unique and impactful solutions. And this is a win-win for both – startups and customers. Also, innovation for cutting the cost of internal operations will ensure good margins.
Market consolidation
The funding winter can lead to partnering, and mergers & acquisitions of similar businesses, making the market positioning stronger in the competitive landscape. Also, with few startups getting investment, there can be less competition which can lead to fast capturing of the market for the sustainable and established startups. With the limited funding, investors may be compelled to invest in the companies that have proven traction and road to profitability. This would increase the investment in the companies which are more likely to be successful.
Long term success
All the above-mentioned factors will contribute to the long-term success of the startups. Those navigating the hard times will be winners. In history, it has been seen that successful companies often have emerged out of the worst economic conditions.
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