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Funding Winter

Funding Winter:

Investments from large foreign investors fell by as much as 80 per cent on average in 2023, amid the Indian startup ecosystem’s so-called funding winter.

  • Funding Winter refers to a period of market correction in capital inflow, which lowers the probability of startups getting higher valuations in the short to mid-term.
  • Simply put, founders find it difficult to raise funding and achieve sky-high valuations.
  • It often leads to investors avoiding firms without a set path chalked out for profitability.
  • This, in turn, prompts a need to correct the value of the start-up.
  • Further, one of the prominent effects of funding winter is that it requires business owners to reset their priorities in terms of profit maximization.
  • With the funding winter in place, start-ups resort to measures which help them save their working capital, as the expectations of funding from investors are minimal.
  • The advertisement expenses, capital expenditures and expansion plans are put to a halt in order to increase the sustainability of the firm.
  • Only the expenditure essential to the survival of the firm is undertaken and all possible steps are put in place to ensure unnecessary expenses.
  • Funding winter is not a new concept but a cyclical effect that happens due to multiple factors which impact the free flow of investments in the market.
  • These factors may either be generically applicable to the entire market, such as geopolitical unrest in countries, monetary policies or financial irregularities or may be centric to the relevant sectors.
  • The duration of a funding winter is unpredictable, and it may last for a long time depending on the multiple factors acting upon it.