The Looming Global Recession And Indian Startup Landscape

Upcoming recession- boon or bane?

With the ongoing volatility in the equity market, investors have become more cautious about spending their money. While this is not good news for startups, it is good news for investors. The current and upcoming slowdown will give them a chance to invest in startups at more realistic valuations.

Given the cautious nature of spending, there is a time lag in funding a startup from pitching and evaluating (time spent here has also increased drastically) to closing and ringing in the cash register. Consequently, fundraising rounds take longer to close, thus giving an investor ample time for evaluation. Yet another pro for investors is that the slowdown has resulted in only the ‘best’ surviving. Hence, the deals that come their way will very much be in the market for the long haul.

How are startups being impacted by the slowdown in funding?

India is recognised as the 3rd largest ecosystem for startups across the globe. Between 2015-2022, startups in India witnessed accelerated growth (almost 15X) with increasing investors and an upsurge in the number of incubators. According to reports, more than 42 billion dollars of funding was provided to Indian startups in 2021.

However, with the funding winter setting in and companies across several verticals witnessing a dip in funding, startups in India have also experienced a change in the landscape. With the cost of necessities and energy rising, companies are struggling to make ends meet.

Adding to their woes is a slowdown in global investments. One of the most significant impacts has been the extensive cost-cutting measures, the most prominent of which are layoffs and downsizing. The focus for many now is on unit economics and keeping the company afloat. Many are now prioritising extensive planning measures, streamlining operations, and preparing for the worst-case scenario.

The challenge here is to accelerate monetisation models so that it grows at a rate faster than the rate of the slowdown. It is crucial to remember that startups that espouse innovation and disrupt the norm are likely to thrive.

Startups are advised to leverage this downtime to pivot and scale. Scalability is an important business goal for every startup because it ensures the company can sustain rapid growth. However, with development, many processes are bound to change. Certain components will become less efficient due to people management and overheads, while others will be more efficient due to technology and economies of scale.

Thus, it is essential to consider these growth implications as investors seek startups that are on the edge of expansion and are prepared to deal with the changes that come with it. Founders capable of adapting their businesses when required will appeal more to investors.

Way forward

India has truly evolved into an international system, developing frameworks for its security and development. Pursuing stronger national interests and building stronger strategic ties with other countries, the recent past has seen rapid and continuous growth, cementing itself as a geopolitical superpower.

With a GDP of $3.1 trillion, India is ranked as the sixrh largest economy in the world and also improved its rank by 23 positions in the World Bank’s Ease of Doing Business Report.

India’s entrepreneurial DNA also has seen excellent traction in the past decade, with the country climbing to the 46th spot in this year’s Global Innovation Index, becoming one of the few countries to have consecutively improved its rank for over ten years.

With the rest of the world grappling with the aftermath of a pandemic, recession, energy crisis, war, or supply chain breakdown, India is taking giant strides in creating sustainable solutions across various sectors.

Startups continue to bring innovation and disruption in multiple industries, including spacetech, femtech, healthtech, and fintech. This brings tremendous opportunities for investors and startups. With decisive leadership in place, the stage is set for the country to realise its vision of becoming a $5 trillion economy and global powerhouse by 2024-25.

Disclaimer: The views expressed in the article above are those of the authors’ and do not necessarily represent or reflect the views of this publishing house