How can startups manage the current downturn in funding?


India witnessed an unprecedented rise in VC investments in the past couple of years. 2021 was the year that saw the record-breaking round of funding. But, the ongoing Russia-Ukraine conflict, the increase in interest rates, and fears of recession led to an increase in funding as investors remained cautious about spending.

Indian companies made $18 billion in the initial quarter of the calendar year. While the total amount increased over the same period last year but there’s a distinct decrease in quarterly revenue. For the 2nd quarter of 2022, VC funding for startups was $6.9 billion, which is down almost 60 percent from $11 billion in the initial quarter as per the data provided by Venture Intelligence.

The mega deals which are those with investments in excess of $100 million were also down both on a year-to-year basis and in a chronological manner. Incredibly, in the midst of the growth stage and late start-up funding was dwindling the early-stage funding proved resilient.

The early phase startups received $856 million in the initial quarter of the year, and second-quarter funding remained at $839 million. In the final stage, start-up funding rounds and the second quarter of funding halved to $1.7 billion, as compared to $3.3 billion during the opening quarter of 2022.

With the expectation that capital flow will be slowed in the months to come, Indian startups have tightened their belts and have resorted to layoffs. According to Inc42’s Inc42 layoff tracker, more than 11,000 employees were laid off at the beginning of the year.

While ed-tech companies were facing the heat of the size and the number of layoffs. Several unicorn companies like Ola, Blinkit, Vedantu, and Cars24 were part of the list of companies to be fired.

Able Joseph founder and CEO of Aisle believes that Aisle should spend more on people rather than marketing. Marketing costs should yield results, but you can’t do it randomly according to him, adding that the company has been hiring too much for no reason. Do not see the necessity for software companies to recruit hundreds of top-notch universities.

Rashmi Daga, the co-founder, and CEO of FreshMenu advises companies to stay true to their primary business. They should focus on achieving certain business goals. Businesses should cut back on spending on marketing for vanity purposes.

While VC funds and tech investors are pushing startups to concentrate on sustainable profitability and growth. Sequoia Capital recently made a presentation to its portfolio companies that focused on the need to generate continuous cash flows, steady growth, and a disciplined approach to financial management.

A different venture capital company Y Combinator had also sent an advisory note to the owners of its portfolio companies about how to manage the current financial crisis.

Able Joseph, the founder CEO, and president of the dating app maker Aisle which was recently purchased by InfoEdge The founders of the company should be particularly concerned about morale of their employees as they reduce the size of their workforce and halt hiring plans.

But, they will have to be aware of their hiring and marketing methods and be prepared to be more scrutinized in the future. Do the necessity to be prudent take the shine off the Indian startup story or just improve it in the future?

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