How can startups get through a funding winter, and how can Transaction Advisory Services help?
The International Monetary Fund predicts that global growth will slow in 2023, but that India will be one of the fastest-growing economies. Indian startups, particularly tech-enabled startups, will drive this expansion. The year 2022 was difficult for new companies as massive layoffs occurred, valuations dropped, and funding slowed. According to Tracxn, a global market intelligence firm, the Indian startup ecosystem saw a 35% drop in funding in 2022 and entrepreneurs can find it difficult to secure funding this year too.[1] In this scenario, startups must understand how to survive a VC funding winter.
What is a startup funding winter?
A period of drastically reduced funding and investment deals in the startup ecosystem is known as the “startup funding winter.” This is the result of an extraordinary global hike in interest rates that all central banks have agreed to implement to clear the market of excess liquidity and stem the tide of spiralling inflation.
Sectors like ed-tech and gaming, which experienced a significant natural boost as a result of the pandemic, are now facing more difficulties because their development has plateaued. Similarly, some startups haven’t raised money in the last two years. All this is leading to rising uncertainty. Global company strategies and operations have been badly affected by the simultaneous crises that have plagued the world over the past two years, including geopolitical unrest, supply chain shocks, record-breaking inflation, and tighter monetary conditions.
Financial institutions and investment firms’ reduced appetite for risk is a direct result of this loss in liquidity. Profitability is now a top goal for banks and investors. As a result, the day investors were willing to sacrifice these criteria in the name of growth at all costs is over. Startup businesses would now have to create viable business plans that suit investors’ desire for low-risk investments. This brings us to the question of how can this be done.
How to survive a funding winter?
As a startup, you know that the road to success is not always smooth. You may have experienced the highs of securing funding, but you may also have experienced the lows of a funding winter. With the right strategies, you can survive and even thrive during this period. Here are some tips to help you get through a funding winter:
- Focus on Cash Flow: During a funding winter, it’s important to focus on cash flow. Make sure you’re monitoring your expenses and cutting back where you can. This will help ensure that you have enough money to keep your business running.
- Look for Alternative Sources of Funding: While venture capital firms may not be investing, there are still other sources of funding available. Look into crowdfunding, angel investors, and other sources of funding to help keep your business afloat.
- Get Creative: During a funding winter, you may need to get creative with your business model. Look for ways to generate revenue and consider new ways to reach customers.
- Network: Networking is always important, but it’s especially important during a funding winter. Reach out to potential investors and partners and let them know what you’re working on. You never know who might be interested in investing.
. 5. Stay Positive: It’s easy to get discouraged during a funding winter, but it’s important to stay positive. Remind yourself of why you started your business and focus on the long-term goal. These are just a few tips to help you survive a funding winter. With the right strategies, you can make it through this difficult period and come out stronger on the other side.
How do Transaction Advisory Services help startups during funding winter?
During these times, startups need to be creative and look for alternative sources of funding. One such option is transaction advisory services (TAS). They are a type of professional service that helps companies identify and evaluate potential funding sources, as well as negotiate and structure deals. This can be beneficial for startups during a funding winter, as they can help startups find alternative sources of funding that may not be available during more traditional venture capital rounds.
TAS can also help startups navigate a deal’s complex legal and financial aspects. This includes helping new companies understand the terms of a potential funding deal, as well as helping them negotiate better terms. This is especially helpful for startups that are not familiar with the legal and financial aspects of a funding deal.
Finally, transaction advisory services help startups develop strategies to maximize their chances of success. This includes helping them develop a business plan that is attractive to potential investors, as well as helping them develop a strategy for managing their finances.
Conclusion
If a startup is struggling to survive, especially to secure funding this year, TAS can help. They can help a startup get through difficult times, become stable, and eventually grow. Furthermore, this year, cash burn should be eliminated, and entrepreneurs’ primary focus should be on maximizing profits.
The author is Mr. Prashant Gupta, Founder & CEO, Caerus3 Advisors, and Think-Tank and the views expressed in this article are his own)
