Funding Winter – impacting Indian startups

The term "Funding Winter" refers to a period in which funding for startups becomes more difficult to obtain due to a variety of factors, including economic conditions, market trends, and investor sentiment.

This has bring a significant impact on the growth and development of startups, particularly those in emerging markets like India. We are witnessing – employee layoffs, investors delaying capital infusion decisions, lower spends by startups in marketing, some startups getting valued lower than their previous funding rounds, etc. – resulted drying up of capital flows or “Funding Winter”.

This has been a global phenomenon throughout 2022 and expected to have an extended run in 2023 as well. Prior to funding winter, globally many startups were able to raise funds at increasingly higher valuations with relative ease. India being the third largest startup ecosystem in the world, these trends are reflected in the capital flows to India startups as well. A recent PwC report mentions a drop of 33% funding of Indian startups during 2022 in comparison to 2021.

Venture Capitalists and PE Investors are not rushing into new deals; many prefer to invest in their existing portfolio where the business has progressed as per projected milestones. Most investors look for a clear path to profitability while investing. Despite these challenges, however, Indian startups have continued to innovate and adapt, finding new ways to secure funding and grow their businesses.

According to data compiled by private market intelligence platform Tracxn Technologies, the number of unicorns in India nearly halved from 44 in 2021 to 23 in 2022; globally there is a 55% drop in the number of startups attaining valuation of One Billion dollars or more.

Secondly, we have witnessed funding winter has made India a lucrative market for cloud migration startups focused on profitability over growth. The relevance of cloud migration seems to be going beyond scalability and agility in recent times. As the funding winter has set in and is expected to continue for the next couple of years, projecting positive unit economics is imperative for startups to attract more rounds of funding.

With the Indian startup ecosystem shifting its focus towards profitability, cloud migration startups are seeing a significant spike in demand. As investors now

prioritize positive unit economics, startups are turning to cloud migration to reduce cash burn and improve their profitability projections. This has created a lucrative market for cloud migration service providers from global markets, who are witnessing growth despite the funding winter.

Additionally, cloud wars between the major cloud giants have resulted in slashed pricing, making cloud migration an even more attractive proposition for Indian startups. Cloud migration has now become a survival imperative for Indian startups, leading to a surge in demand for cloud migration services.

Going forward, funding winter will continue till global factors contributing to enhanced risk perception remain dominant. In the meantime, startups need to devise coping mechanisms to survive and exploit the market conditions.