Startup Survey: ETtech Startup State Survey: Save Cash, Reduce Burns, Be Profitable

Save money, reduce burnout and be profitable.

This was the common verdict of India’s top founders, investors and Internet executives in ETtech’s annual Startup State Survey.

The poll, which solicited responses from more than 60 key figures, is one of the biggest failures of the technology industry worldwide.

As companies tighten their belts, 64% of respondents said funding could ease in the second half of 2023, while 21% felt it could get worse. 14.8% said the area will be the same as this year.

The investor frenzy has led most founders with enough runway to say they will avoid fundraising for the next six months. A quarter of them said they could still try to raise new capital.

Last year saw the birth of 40 new unicorns (private companies valued at $1 billion or more), a fundraising record for Indian startups. However, it has been a struggle for survival in the last six to eight months, founders and investors say.

“2022 has been a learning curve for all stakeholders in the startup and technology sector, perhaps due to the massive influx of funding over the years. It didn’t take long to realize the impact of the globalized economy on macroeconomic and political factors affecting investor sentiment around the world…,” said a startup founder who participated in the ET study. “Thinking long term is more important than following short term.”

Funding for startups this year It stood at $23.7 billion on Dec. 21, compared with $35.46 billion raised last year, according to data platform Venture Intelligence.

In short, last year’s euphoria has given way to serious caution amid geopolitical uncertainty caused by the Ukraine conflict and US central bank interest rate hikes.

The biggest takeaway for 2022 is to ‘do less, save money and focus on profitable growth,’ said one founder, who spoke on condition of anonymity. Another entrepreneur added, “Hold your business and strategy while waiting for the next round of funding.

The poll, conducted over three weeks, shows how the startup ecosystem is responding to the so-called winter of funding.

87% of those polled said they would not hesitate to close unprofitable businesses and restructure their organizations.

Sahil Goel, founder of logistics aggregator Shiprocket, said when asked about his priorities as an entrepreneur in 2022: “Maximize every revenue-enhancing initiative and cut all unnecessary expenses.”

“The focus is on building a profitable business,” Goel said.

Main business, profit

“Focus on core markets and products with better unit economics and grow what works,” says Varun Alag, founder of direct-to-consumer startup Mamaterz.

Gurugram-based Mamaearth posted an operating income of Rs 943 crore and a profit of Rs 14.4 crore in FY22. It plans to go for an initial public offering (IPO) next year. With a valuation of $1.2 billion, the startup is one of the most valuable D2C brands in India.

VT Bharadwaj, general partner at Mumbai-based investment firm A91 Partners, said the markets have started again, the ecosystem is in a different era and there is no turning back.

“If you have product market fit (PMF) and cash in the bank, invest proactively to share; if you don’t have product market fit, refactoring, cost reduction and testing, and you don’t have a business model, cut your costs drastically. Go back to the drawing board in business,” he said. . “Imagine no capital available for the next three years.”

PMF says it happens when unit economics works.

“… and the reason it works is because demand is created by the pull of satisfying customer needs, not the push of discount and performance marketing,” Bharadwaj added.

It is not growth at all costs


Many consumer-focused startups have had to cut marketing costs to save cash.

“Growth at any cost is not what we have historically pursued, and we will not do so in the future. We plan to be frugal in our use of cash and ensure that there is a high level of awareness about it,” said Tushar Garg, founder of Bluesmart Electric Vehicle Company.

But BluSmart isn’t cutting back on hiring. “We hire for the right reasons,” Garg said.

Growth and profitability are not mutually exclusive, and should work together, said Siddharth Pai, founding partner at early-stage venture fund 3one4 Capital, which has invested in meat delivery startup Licious and Neobank Open.

“Capital preservation is still key, as opposed to diversification, frugality will be the norm; fundamentals have returned to work and will remain so in the near term,” he said.

IPOs are only for profitable companies

Last year, another big theme was startup initial public offerings (IPOs).

However, six months after their public market launch, most of the new-age stocks like Zomato, Paytm, Nykaa and Policybazaar took a big hit on the bourses as they created a major rout in technology stocks globally.

Considering the bleak picture, nearly 47% of those surveyed said the list could only be for domestic startups in 2024.

“IPO markets are now open for new-age companies. Governance and profitability will be key themes for 2023,” said Mohan Kumar, managing partner at Avatar Ventures, a software-as-a-service and enterprise-focused growth-stage venture capital firm.

Listed companies such as Freshworks are currently trading at a market capitalization of $3.72 billion, compared to $13 billion when they listed on the Nasdaq in September last year.