India witnessed surge in both funding activities and startup ventures, with an influx of over 16,000 new tech companies entering the scene in 2020 alone. This burgeoning trend continued its momentum, culminating in a substantial $8.4 billion in funding for the Indian ecosystem by 2023. 

Particularly noteworthy is the significant growth observed in equity funding for Indian gaming startups, skyrocketing by nearly 70% to reach $647.9 million in 2022, a significant leap from $381.8 million recorded in 2020. Consequently, the landscape is abuzz with discussions surrounding funding opportunities and financial support, indicative of the dynamic nature of India's startup ecosystem.

Among the key players in this arena stands Mumbai-based edtech powerhouse upGrad, which recently garnered attention with its ambitious plans for a $100 million fundraise. Simultaneously, the company is reported to be in advanced negotiations for the acquisition of US education firm Udacity, strategically aligning with its broader vision to fortify its offerings and expand its footprint on the global education stage. 

Notably, Ronnie Screwvala, the founder of upGrad and a significant stakeholder, is poised to inject personal capital into the impending funding round, further underscoring his commitment to the company's growth trajectory. Additionally, upGrad has actively engaged external investors, aiming to secure an estimated $50-60 million, with the remaining investment anticipated to stem from existing backers, reaffirming their confidence in the company's prospects.

As upGrad continues to chart an upward trajectory, its financial performance speaks volumes, with an impressive 96% surge in revenue to INR 1,194 crore during the fiscal year 2023. This remarkable growth is attributed to a substantial expansion in its paid-learner base, demonstrating a robust 54% year-on-year increase. To glean insights from these forward-thinking initiatives, we conducted an exclusive interview with Gaurav Kumar, Head of Corporate Development and M&As at upGrad.

Excerpts from the interview: 

Can you share your insights on the current economic climate and how it might affect startups seeking funding?

During economic slowdowns, investor caution often leads to a tightening of capital availability, favouring established businesses with proven track records. This preference for safer investments limits opportunities for new and innovative ventures, which typically require more time and resources to establish themselves. Startups, known for their reliance on experimentation and innovation, face heightened challenges during such periods, as securing funding becomes increasingly difficult. Consequently, much of the available capital tends to flow towards safer assets like debt, leaving fewer resources for startups to access and grow.

Moreover, the risk-averse nature of investors during slowdowns can stifle entrepreneurial spirit and dampen innovation, as startups may struggle to secure the necessary funding to develop and scale their ideas. This dynamic not only hampers the growth potential of individual startups but also has broader implications for economic growth and job creation. Without adequate support and investment, promising new ventures may struggle to flourish, potentially slowing down overall innovation and economic progress in the long run.

In your experience, what strategies have proven effective for startups in navigating economic uncertainties to secure funding?

Rather than solely prioritising rapid growth, startups should emphasise sustainability as a key strategy. This entails a shift in focus towards building a strong foundation that can weather economic uncertainties and stand the test of time. Instead of channelling a large portion of their raised capital into aggressive expansion efforts, startups can benefit from redirecting their resources towards reinforcing fundamental principles. 

By concentrating on long-term value creation and addressing genuine market needs, startups can position themselves for sustainable growth even amidst economic downturns. This approach not only enhances their resilience but also fosters a more robust and enduring business model that is better equipped to navigate future challenges.

What advice would you give to startups regarding the timing of their fundraising efforts in relation to economic cycles?

Opting for sustainability and longevity over rapid growth can be a prudent strategy for startups navigating through challenging economic cycles. While it may seem tempting to prioritise expansion at any cost, it's crucial to recognise the risks associated with unsustainable growth, especially during economic downturns. By choosing to grow more slowly but steadily, startups can mitigate the risk of financial instability and avoid the pitfalls of accumulating debt that could ultimately threaten their survival.

In addition to focusing on sustainable growth, startups can also explore alternative solutions to conserve cash flow during lean periods. One approach is to seek out barter arrangements, where goods or services are exchanged without the need for cash transactions. By leveraging the resources and expertise they already possess, startups can negotiate mutually beneficial deals with other businesses, exchanging their own products or services for those they need to sustain their operations. Alternatively, startups can offer equity in exchange for essential services or resources, providing partners with a stake in their success while minimizing immediate financial outlays. By embracing creative solutions and prioritizing financial prudence, startups can navigate through difficult economic cycles while laying the groundwork for long-term success.

What are some alternative sources of funding that startups can explore when traditional avenues are limited during an economic slowdown?

Indeed, during challenging economic climates, overall capital availability tends to diminish as investor appetite for equity investments declines and the cost of debt increases. This shift in market dynamics can significantly impact the investment landscape, affecting both startups and established businesses alike. Equity investment, which entails exchanging ownership stakes in a company for capital, becomes less attractive to investors wary of market volatility and uncertain returns. Similarly, the rising cost of debt financing makes it more challenging for businesses to access loans or credit facilities to fund their operations or expansion plans.

In such circumstances, investors may opt for alternative investment structures, such as structured equity or debt instruments, which offer greater flexibility and risk mitigation. Structured equity deals, for example, may involve convertible securities or revenue-based financing arrangements that provide investors with a combination of equity upside potential and downside protection. Similarly, structured debt instruments, such as mezzanine financing or revenue-sharing agreements, allow businesses to access capital without taking on excessive debt burdens or sacrificing equity stakes. By embracing innovative investment structures tailored to the current economic climate, businesses can adapt to changing market conditions and secure the funding needed to weather the storm and pursue growth opportunities.

You can also read: 

• Why employee recognition doesn't work: The dark side of boosting team morale
• The financial benefits of layoffs are misinterpreted: Baazi Games' CHRO gives reality check
• How should HR deal with difficult employees?

Finally, based on your expertise, what key strategies or tips would you offer startups to increase their chances of securing funding despite economic challenges?

Great businesses always secure funding irrespective of economic challenges. I will advise startups to focus hard on the problems they are solving for, the magnitude & severity of impact it creates and the continued relevance of their solutions. Understanding of all key aspects of business with last mile focus to execute always helps in building great businesses.