Majority of startup founders to find access to equity funding challenging in 2023: report

The funding winter environment has restricted the inflow of venture capital and 60% of Indian startups feel that equity financing will continue to be inaccessible to them this year, according to a survey.

The Startup Pulse 2023 report by Recur Club, a platform for alternative financing to startups and SMEs, which conducted a survey of more than 200 founders suggest that 57% of the founders were constrained by limited access to relevant investors and in addition 51% of them faced challenges of lack of urgency among investors and indefinite wait periods.

The report noted that this has impacted the growth of digital enterprises across sectors such as D2C (direct-to-consumer), B2B (business-to-business) tech platforms, and tech services, with median revenue growth decreasing from 103% in 2021 to 48% in 2022. However, startups in the segments of property tech and SaaS were able to buck this trend and managed to largely maintain their growth velocity and stability.

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The report noted that the Indian startup ecosystem worldwide saw significant course correction in 2022, receiving around $24 billion in equity capital, down from a record $42 billion in 2021. But despite a downturn in growth stage financing, the year witnessed a sharp rise in angel investments, especially in the retail sector, with a stronger emphasis on value-based investments than rapid growth.

Despite this background, the report noted that 81% of the founders are confident that they can accelerate their business growth in 2023, with SaaS, co-working, and tech services firms being the most optimistic.

Recur Club believes debt and alternative financing routes will increasingly become a preferred route of getting capital for a section of founders. Debt and alternative finance will be essential to fostering this growth and new funding paradigm, it noted.