Back to basics for startups during the funding winter: 5 key takeaways from TechSparks 2022

The 13th edition of TechSparks 2022 brought together founders, C-suite executives, and investors who spoke about the rocky road to raising a round and what startups can do to survive the funding winter. While there is no denying that the funding winter is upon the startup ecosystem, early-stage investments will continue to see activity. The overall message for startups was to bring the focus back on product development and improve unit economics as they brave the times ahead.

Here are a few key takeaways gleaned from what the speakers weighed in during the event:

1. Funding winter is here to stay and there is renewed focus on unit-economics and controlling burn rates. Investors expect resilient startups to come out stronger from this cycle. 

Nithin Kamath, Founder and CEO, Zerodha

“It has become increasingly difficult to build a minimum viable product (MVP) for a few million dollars… Funding winter doesn’t seem to be going anywhere as of now.” 

2. The cycle of hyper valuation has ended and it might be difficult for growth-stage startups to raise a new round of equity capital on par with the valuation in the previous round. The speakers cautioned against raising external capital for vanity and equating valuation with self-worth. 

Sectors such as edtech and quick commerce saw valuations sky-rocketing last year. But this will be difficult to top in the current funding environment.

Vani Kola, Founder and Managing Director, Kalaari Capital

“Time and again, I have seen valuation derail the mission and purpose of why the founder started the company in the first place. How much are you or your company worth is the wrong question to answer.”

Kabeer Biswas, Co-founder and CEO, Dunzo (on hyper funding in quick commerce)

“Sometimes too much money gets pumped into companies that are said to have value. For those who are struggling to get funded, you just have to ride the wave.”

3. Wear the unicorn crown lightly: The year 2021 added 42 new entrants to the startup unicorn club, which signifies companies valued over $1 billion. The tag takes away the burden of second-guessing the business and it should be celebrated, but one mustn’t get carried away, advised founders of unicorn companies. While turning a unicorn can drive cultural shifts within the company and external validation, it can often lead to hubris. 

Saahil Goel, Co-founder and CEO, Shiprocket

“It is a tag which says that you have the potential to be a category leader. The venture risk in the company is gone and it says you are on path to be a stable company, your mortality risk has reduced. It gives a high to a lot of people in the ecosystem.” 

Alakh Pandey, Founder and CEO, Physics Wallah

“When the company is valued well, it's not in your personal bank account and you cannot withdraw it… I feel powerful when I see PhysicsWallah’s bank account that nobody can break it (the company).”

Pankaj Makkar, Managing Director, Bertelsmann India Investments

“Building a large outcome should be celebrated. Building a unicorn is a milestone, that some significant value has been created. It does not mean further milestones won’t come.”

4. Unit economics, building a strong strategy and capturing the market should be the focus areas for startups weathering the funding winter, said the speakers. While fund-raise is perceived as the stand-in metric for success, the current investment scenario spells back to basics for all. 

Pranjal Kumar, Global CFO and Head of Corporate Development of Eruditus Executive Education

“First get your playbook right and then aim at scaling fast. When I started Eruditus, I focused on offline till 2016, online in 2017, got it right the following year, and then expanded outside India to the US and LATAM.”

Sandeep Nailwal, Co-founder, Polygon

"Ideally Web3 was looking similar to Web2 world. The most iconic personality in the space was playing with user funds… Web3 has dark clouds and the funding environment and business environment is going to be cumbersome… The fundamentals however are still intact.”

5. The Indian startup ecosystem continues to be resilient, despite the headwinds, said investors. While deals up to Series A and Series B companies will continue to make headlines, there is keen interest from domestic limited partners to back funds. 

Sudhir Sethi, Founder, Chiratae Ventures

“If one takes away the exuberance of last year, the investment gradient has been upwards. Every industry goes through ups and downs and now is the time for startups to rebuild their strategies.”

Amit Somani Managing Partner, Prime Venture Partners

“The amount of LP (limited partner) interest in the last six months is probably more than what I have seen in the last eight years. There is enormous interest in India but things are a little more realistic now.”