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Tide Through The Start-Up Funding Winter

Updated: Feb 28


Enough has been said about the downturn in Investor sentiment in the private markets. A startup funding winter as one would say – a winter that is likely to impact both the probability of raising funds & the chances of negotiating high valuations, in the short to mid term.

The reasons are probably understood by most, but largely beyond the circle of influence for any one stakeholder in the eco-system. There’s the global recession-like scenario, economic upheaval due to the Russia- Ukraine war and the recent blood bath in the public markets across geographies.

What should Indian start-ups look out for?

For India, rise in interest rates and highest ever inflation & steep upswing in commodity prices are probable indicators of a slowdown, after a strong rebound in 2021. Further, the currency depreciation at an accelerated pace also impacts valuations & funding due to unfavorable conversion rates.

How long this period is likely to last, is a guess best not ventured. Economic trends behave cyclically - as per the World Bank’s Global Economic Prospects, report, Global growth is expected to decelerate to 4% in 2022 and further lower to 3.2% in 2023, though there will be regional dissimilarities where Asian markets may fare better than the European and African counterparts.

Notwithstanding, the repercussions of the macro-economic scenario on the startup eco-system, are already become visible in some measures. News of dropping valuations/ profitability of recently listed startups has been doing the rounds. Moreover, people redundancies across pre-IPO but well-funded startups have further dampened the spirit of pre-seed and angel founders that are on the anvil of their first or second funding round. Some are even willing to drop valuations substantially, just to secure funds to tide over the current scenario and remain afloat.

Well, the picture is not all that grim. Markets will bounce back eventually, probably in a period of a year or more, irrespective of how slow it gets. The key question is - do early stage startups have the grit to last out this seemingly prolonged period of uncertainty?

Tips for entrepreneur/ start-up at pre-seed or angel stage

Delay scaling till the model is indeed proven

be obsessive about your product-market-fit that is firmly validated by customers. Get a reality-check of the true customer need and the right fit of your solution in terms of its value, price, mode, delivery etc. Meet your customers in person, periodically to learn. Then pivot, as any times as it takes. Read macro-trends and bend with the topicality curve. Be steadfast in your vision, but nimble in your approach to get there.

The model is viable only if it is built on positive unit economics

Most people ignore this simple but cardinal rule. Now is not the time to go for high-burn models, given the paucity of investors and funding to support risky businesses. Investors will be willing to back founders that have a decent positive gross margin and ability to reach break-even on smaller volumes. Possibly even a positive EBITDA, even though that’s difficult to achieve early on in the game.

Build a business, not a valuation

In the long term, sustained growth comes from robust Revenue and Profitability. Many founders spend a large chunk of their time chasing investors in search for a big valuation. Remind yourself that you are in the business of Value creation, not mere valuation! Spend judiciously if and only when required and curb all unnecessary expenditure stretching your working capital to the hilt.

Invest heavily in Customer Experience and Retention

Brilliant basics are called that for a reason. The cost of retention for any business is far lower than that of new acquisitions (typically a third of the CAC). Moreover, repeat customers provide higher value and returns, through propensity for upselling, cross-selling, and referrals/ advocacy, provided you are building a fruitful engagement strategy. Create simple customer journeys that make it convenient for customers to interact with your brand. Effective use of AI/ ML to deliver personalization results in better CX and loyalty that enable you to win them over as repeat customers over and over again.

Build talent and a culture of accountability

environments where people are celebrated usually deliver higher productivity and innovation. A culture of effective communication, transparency, and trust, motivates people to bring their best to the workplace. Speaking metaphorically of course, since remote work and hybrid models are here to stay, and continued usage of digital tools fosters collaborative engagement and cohesive delivery of results.

If it is a must, raise small rounds

just about enough to cover your expenses for the reasonably foreseeable future, no more than 6 to 12 months. Define small and achievable milestones and prove your credibility by over-delivering on the KPI promises made to investors. Winning investor trust augurs well to secure follow-on rounds, as they double down their funding for entrepreneurs who are on a winning streak

Deploy debt capital for growth and scaling needs

you need not dilute capital if your business is already profitable. Why lose your share on the cap table if there are other sources of funding that you can afford to pay off from your monthly P&L. Healthy financials can help offset short-term capital needs, without wasting precious time and equity in chasing angels & VC’s

When the business actually scores big wins, ie. drives consistent growth momentum, crosses a threshold acquisition or retention ratio, and/or hits its aspirational Revenue/profitability targets - go for an equity raise at a high valuation to compensate the founder/s for the value they have created, in getting to that point.

There is never going to be a time, even through this winter, when VC’s and PEs will stop funding solid business models based on real consumer insights and solving real problems in a differentiated manner. And doing so in a profitable manner! Idea is to get selected among the fewer start-ups that will still steadily win the day and firm up funding support.

As you continue to innovate and disrupt your category, the buzzwords for this period are customer love & simplicity, people and empathy, listening & reality-check, financial prudence & good governance. Fundamentals as one would say – however oft-abused in the quest for short-term gains and quick wins.

As one of the media moguls recently remarked - Indian startups should stop trying to get Rich quickly and aim to create Wealth. The subtle difference stems from prudent decisions to conserve equity and build a good business based on sound fundamentals.


However big or small, make it a clean business, a robust business- a business you can be proud of. The winter will get tided over.

If you think this post was helpful, then check out the upcoming CX trends. So, that your innovation department can innovate around them to elevate your business.

Also, if you need any help regarding your business’ customer experience connect with us anytime at or call us at +91 9599496661.

You can also listen to us on our C-Xcel podcast!


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