Indian Startups Witness Sharp Drop in Funding for FY23, Reducing Burn Rate to Sustain Operations
New Delhi, July 18 – The Indian startup ecosystem, which experienced a surge in funding during FY22, has faced a significant setback in FY23, with funding dropping by 70% to approximately $15 billion, according to a report by market research firm Redseer. The decline in funding has forced startups to adopt measures to reduce their burn rate and accelerate their path to profitability.
Various factors have contributed to this funding slump, including the rising cost of capital and interest rates, along with a recession in developed markets. The decline in the value of tech stocks and a slowdown in consumer internet growth have further compounded the challenges faced by startups in securing sustained funding.
Mohit Rana, a partner at Redseer, emphasized the need for startups to adapt to these difficult circumstances. Boards and founders need to align their visions and take greater responsibility in supporting startups during challenging times. Currently, only a limited number of privately-owned companies have founders with ownership stakes ranging from 0% to 20%, in comparison to publicly-owned companies where founders hold over 50% ownership in 65% of cases.
While startups navigate through these turbulent waters, some listed tech companies have managed to make significant improvements in recent quarters. For instance, Paytm has launched new products and expanded into new business segments, while also increasing revenue per customer and reducing customer acquisition costs. Similarly, Zomato has increased take rates from restaurant partners and delivery costs from customers.
The report also predicts an increase in the number of profitable unicorns (startups with a valuation of over $1 billion) across various sectors over the next three to four years. In FY22, there were 30 profitable unicorns, but this number is expected to rise to 55 by FY27. However, regulatory challenges, plummeting demand, and unclear business models may cause 20% of unicorns to struggle.
The report also notes that struggling unicorns may have to pivot to new models, get acquired, or eventually shut down. On a positive note, profitable unicorns in India could generate five times the profit in FY27 as they did in FY22.
In conclusion, the drop in funding for Indian startups in FY23 has prompted them to take immediate action to reduce costs and achieve profitability. While challenges persist, there is optimism that a significant number of unicorns will become profitable in the coming years. However, regulatory hurdles and other uncertainties may pose challenges for some startups. To ensure survival and success, founders and boards must work together to provide guidance and support in these difficult times.
