Start-up founders expect fundraising to be tougher in 2023: Report

Only 38% of them expect higher pace of hiring, mostly in early-stage companies

As many as 58 per cent of founders of Indian start-ups expect fundraising will be tougher in 2023 and hiring muted, said a report on Wednesday.

Only 53 per cent of founders had a positive experience while trying to raise funds last year compared to 92 per cent in 2021, according to InnoVen’s ‘India Startup Outlook Report.’ Its research is based on insights from more than 120 start-up founders across stages and sectors such as fintech, SaaS, D2C, logistics, e-commerce and health technology.

“2022 was a challenging year for the start-up ecosystem with an end to cheap money, rising interest rates and a challenging geopolitical environment,” said Ashish Sharma, managing partner at InnoVen Capital India. “The positive aspect of the slowdown has been an increased appreciation for building sustainable business models.”

At least 85 per cent of founders said focusing on sustainable business models has been their response to the funding slowdown.

Tightening funding has also led to increased focus on profitability and unit economics. Despite the market slowing down, most founders are optimistic about raising their next round of capital at a higher valuation. As many as 75 per cent of respondents expect a higher valuation than their last round, with fintech firms being the most bullish of being able to raise an up-round (96 per cent).

While both growth and profitability are important, for the first time in seven years (since the inception of the survey), founders had a higher bias for profitability over growth. At least 55 per cent of founders stated profitability as a bigger focus area, compared to only 17 per cent in 2021. As many as 19 per cent claimed to be EBITDA profitable, while 62 per cent aim to be so in the next two years, up from 51 per cent last year.

Only 38 per cent of founders expect a higher pace of hiring, mostly in early-stage companies. Founders of enterprise SaaS and agriculture technology companies were the most optimistic about hiring. The survey highlighted that hiring good talent is still a challenge for founders.

Improving gender diversity continues to be a challenge and trends remain largely in line with last year. 67 per cent of the companies have fewer than 20 per cent women in leadership roles, and 38 per cent had fewer than 10 per cent women in their leadership team.

Founders are increasingly considering initial public offerings (IPO) as the likely mode of exit, despite the recent volatility of public market tech companies. A majority of founders (63 per cent) chose a domestic IPO listing as the most preferred exit option compared to 58 per cent in 2021.

The report said that edtech was seen as the most overhyped sector, while healthtech and agritech were the most under-hyped.