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While 2023 saw the lowest funding in seven years for startups, most founders expect 2024 to be better. At least 85 per cent are optimistic about raising their next round at a higher valuation this year, according to a survey conducted by venture debt firm InnoVen Capital.
Of those who attempted to raise money in 2023, 68% had a favourable experience vs 71% in 2022. Enterprise/SaaS, DeepTech and e-commerce founders had the most favourable funding experience while SaaS & Fintech founders were most optimistic, while EdTech and consumer/D2C are most pessimistic about the 2024 funding environment. At least 60 per cent of founders are targeting PE, strategic investors for their next fund-raising round. Family offices and venture debt are also on their radar. Preference for hedge funds continues to decline.
About 61 per cent of company founders in India expect the pace of hiring in 2024 to either be the same as last year or dip a bit, according to the report. InnoVen Capital’s report is based on insights from founders of startups across stages and sectors such as fintech, SaaS, D2C, logistics, e-commerce and health tech.
Nearly two-thirds of the country’s startup founders continued to prioritise profit over growth in 2023 for the second year in a row. At least 62 per cent of founders said profitability was a bigger focus area, compared to 55 per cent in 2022.
Of the more than 100 startup founders who participated in the survey, 24% were open to hiring professional CEOs in the next 2-3 years, up from 20% in 2022. At least 30 per cent claimed to be EBITDA profitable in 2023, up from 19%= per cent in the year-ago period. A funding winter since mid-2022 had pushed startups across the board to focus on efficiency and profitability, often to justify their high valuation.
Founders continue to look at domestic IPO as the most likely path of exit, with 64% of founders choosing this mode of exit, up from 63% (2022) and 58% (2021). Preference for M&A continues a downward trajectory, falling to 22% from 28% (2022). Overseas IPOs are also not preferred anymore.Enterprise/SaaS and Agritech founders most bullish on an IPO exit, followed by Fintech. 53 per cent expect an exit event in next 3-5 years, up from 43% (2022). 44% are uncertain on their exit timelines vs. 50% in 2022. Only 21% of founders expect an exit within the next two years.
Gender diversity in leadership roles continues to be a challenge. 75% of companies have less than 20% women in leadership roles, and 45% have less than 10% women in their leadership team.
Most founders (82%) believe that focus on building sustainable business models has been a key impact of the funding slowdown, echoing the same sentiment as last year. The tightening funding environment has also led to a correction in valuations. Despite the sluggish funding environment, 85% of founders are optimistic about raising their next round at a higher valuation this year, compared to 75% last year. However, 20% of growth/late-stage founders expect a flat to a down round.
Artificial Intelligence (AI) was seen as the most overhyped sector, while B2B and Manufacturing were chosen as the most underhyped sectors.
Founders chose Zerodha as their most admired Indian start-up, for the fourth year in a row. Kamath brothers were chosen as the favorite founders.
At least 62% of founders aspire to enter global markets, primarily the Middle East and USA. Middle East moved to the number one spot, ahead of the US, driven by government initiatives, subsidies, ease of doing business.
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First Published: Jan 19 2024 | 12:56 PM IST
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