Startups with strong fundamentals can survive the funding winter
Authored Article by Mohamad Faraz (Founding Partner at Upsparks)
Start-ups are currently experiencing a funding slowdown which is likely to persist over the next one to one and a half years. Businesses in fact anticipate a recession and are preparing to cut costs. In this context, only companies with strong fundamentals may continue to receive cheques from investors, although on the lower side.
The funding inclination during the winter will also be oriented more towards early-stage start-ups that prefer stronger economics, lower cash spends and acquisition costs, shut down non-core verticals and do away with vanity marketing spends. Companies, who are surviving the funding winter, are those that are maintaining leaner and smaller budgets, cut flab, extend their runway and bootstrap until conditions get better for external funding.
The anticipation of supernormal returns is also a factor that may attract funding support for early-stage start-ups. These companies are strong because they maintain transparency, have resilient business models, high corporate governance, clarity about profitability path and shun irrelevant business practices. Start-ups that survive the funding winter also depend on venture debt that has doubled in recent times which has eased their dependence on PEs and VCs. The challenge for start-ups is not just to survive this winter, but to stay agile and navigate the seasons ahead.