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Funding winter

Context:

  • In the recently held TiE Global Summit Funding winter remained the main theme of discussion.
  • The event which was held in conjunction with the Singapore Fintech Festival, was attended by almost over 2,000 participants, including many experts, fund managers, thought leaders and startups.
  • Investors who attended the TiE Global Summit (TGS) instilled the confidence that funding winter for Indian startups may end by March.
  • However, they also said that entrepreneurs who are seeking funds must come up with credible plans to generate returns on investments, as just fancy valuations may no longer impress global fund manager.

Funding winter and its significance:

  • Funding winter generally refers to the drying up of funds for startups.
  • However, the funding winter have helped the startups to manage their businesses better without burning excessive cash.
  • It helped in the form of long stretch of low capital inflows into the start-ups throughout 2022-23.

Indian Start-up funding slowdown:

  • The slowdown in the funding for Indian startups began generally around mid-2022.
  • During the period January-July 2023 fund flow dropped significantly by 77 per cent to about USD 4.4 billion against USD 19.5 billion in the year-ago period.
  • In the initial nine months of 2023, startups in India could attract only up to 30­35% of the previous year’s $40 billion.

However, it is accepted that India is generally viewed as one of the places where funds deployment is considered safe due to which it is expected that capital flows to return in the first and second quarter of CY24.

Reasons for funding winter:

  • Uncertainty:
    • Global investors are holding on funds due to the “uncertainty” surrounding the geopolitics, especially in the form of the Ukraine war and the Middle East crisis.

Change in course of behavior by start-ups and role played by funding winter:

  • Previously, Startups felt it right to just burn cash and survive on funding.
  • Due to this nature the start-ups increased exponentially.
  • But in today’s scenario, the startups are behaving in a more mature way on how to run with less cash and to gain better profitability.
  • They are showing better maturity in the form of high CAGR, better profitability, low number of losses, lesser cash burn etc.
  • The funding winter was actually a needed mid­course correction for businesses with the spiked valuations and low profitability.

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