In 2022, new companies faced significant challenges due to widespread layoffs, decreased valuations, and a slowdown in funding. Tracxn, a global market intelligence firm, reported a 35% decline in funding within the Indian startup ecosystem during that year, indicating that entrepreneurs may continue to face difficulties in securing funding this year as well. 

In light of this, it is crucial for startups to meticulously devise their strategies in order to successfully manoeuvre through a period characterised by diminished venture capital funding, commonly known as a VC funding winter. That’s why; People Matters reached out to industry experts and compiled a set of practical approaches to endure this challenging phase of the funding slump.

1. Prioritise customers

In the dynamic world of startups, the landscape can often shift dramatically, and funding winters can pose significant challenges. During these periods of economic uncertainty, venture capitalists tighten their purse strings and conduct due diligence with heightened scrutiny. In such times, Yamini Bhat, CEO and Co-Founder, Vymo, suggested shifting focus inward and prioritising customer experience to navigate the funding winter successfully.

“VCs are now conducting due diligence with a fine-toothed comb with a singular focus on profitability and sustainability. This is the cue for startups to look inwards and ask themselves questions like - Am I prioritising customer experience enough? How can I add compelling value to my customer? How do I engage and retain my team?” said Bhat. 

“I also think that it is equally important to augment your product capabilities. Expand sideways within your whale accounts and figure out how you can own more of their stack and unify journeys across their verticals. They are in the same boat as you are - figure out what you can do to help them tide through this crisis. By extending a helping hand, you can further cement your relationship with them and ensure long-term success,” she added. 

2. Value creation

Ankit Kedia, Founder and Lead Investor at Capital A believes that the funding winter is just a transitional phase of the startup and VC ecosystem in India. He said that “VCs and private investors have not gone off the radar and there continues to be interest in early-stage businesses. On the contrary, if a startup is building on strong business fundamentals – there is a greater chance of it getting funded if it shows potential.” 

Kedia also suggested that the “founders need to revisit their strategy and focus on value creation by building multiple use cases for their products, with a clear path to revenues and eventually a sustainable. The current climate can be seen as a progression for both founders and investors; the lens for building a meaningful business has altogether changed and in a way will benefit the industry in the long term.”

3. Explore alternatives

While VC funding has been the dominant source for start-ups, exploring alternative funding avenues can provide greater flexibility, mitigate risks, and open up new opportunities for growth. By considering options such as crowdfunding, grants and government schemes, angel investors, incubators and accelerators, and strategic partnerships, Indian start-ups can diversify their funding strategies and gain access to a broader range of resources, mentorship, and financial support.

“Diversify your funding sources. Indian start-ups should explore alternative funding sources to survive the funding winter. Instead of solely relying on venture capital, they can consider crowdfunding, grants or government schemes. This can help start-ups mitigate the risks associated with a funding shortage and provide them with more stable financial support,” said Mr Manikanth Challa, CEO and Founder, Workruit.

4. Government grants

Governments around the world, including in India, have recognised the importance of supporting entrepreneurial endeavours during difficult times. Government grants have emerged as valuable resources for start-ups, providing financial assistance, mentorship, and resources to help them weather the storm.

“The Indian government is pro startups and small businesses. There are numerous schemes available that startups can benefit from. The Startup India Initiative is a government funding support catering to LLPs, private enterprises, and registered partnership companies. New ventures are granted substantial tax exemptions, while also keeping financial strain to the minimum. There are also the SISFS & VCA schemes for startups to choose from. SISF provides funding for a startup’s research and development stages, and VCA is a scheme launched by the government to support agriculture-based businesses,” Vittal Ramakrishna, CEO and Founder, POD World told PM. 

5. Reduce burn rate

During the funding winter, start-ups face a difficult situation characterised by restricted capital availability and increased uncertainty. In such circumstances, startups should focus on reducing their burn rate, which is the rate at which they are spending money. This can be achieved by cutting unnecessary expenses, renegotiating contracts, and optimising operations. By reducing their burn rate, startups can extend their runway and survive for longer without external funding,” advised Jaibir Singh, co-founder at TraqCheck. 

6. Fundraising platforms

Fundraising platforms have emerged as powerful tools that connect start-ups with potential investors, enabling them to access funding and navigate the funding winter successfully. “These platforms allow one to raise capital through equity fundraising, enabling a startup to benefit from the investments of multiple small investors simultaneously,” said Vittal Ramakrishna. 

He further added, “Equity fundraising has grown in popularity over recent years. By signing up with fundraising platforms a startup can benefit from reliable funding sources such as angel investors, retail and non-HNI investors.” 

7. Incubators 

Incubators play a crucial role in supporting and nurturing start-ups by providing a supportive ecosystem, mentorship, resources, and even financial assistance. The founder of POD World explained that “a Startup Incubator is essentially an organisation or program that is designed to facilitate the early stages of new startups. They provide seed funding, training, and development for the venture, and in some cases, even a physical workspace for the startup. 

“Incubators also provide valuable networking opportunities with other entrepreneurs, investors, and industry experts. The benefits of incubators go beyond just providing physical resources. Startups working with incubators have access to a wealth of knowledge and expertise from experienced professionals. This can help them avoid common mistakes and pitfalls, and navigate through the funding winter,” he added.