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Strategies for Startups to Overcome the Funding Winter The era of easy and abundant capital is over so it is essential for startups to exhibit strong fundamentals and sound strategy during this funding winter.

By Sujata Sangwan

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Funding winter is difficult for many startups. Those who put a high emphasis on client connections, value delivery, and developing a long-term business strategy are the ones who succeed.

"In a funding winter, startups must prioritise financial management, be lean and agile, and focus on revenue generation. Startups can not only survive, but thrive during challenging times and achieve sustainable growth by being loyal to their vision and adjusting to the changing market conditions," according to Shashank Randev, Founder VC, 100X.VC.

To get through the current environment, startups should concentrate on the following crucial areas:

Sustainable business model

To make sure your business model can create revenue growth and attain profitability over the long run, evaluate and refine it.

"The cost of acquiring, serving and retaining the customers should be lower than the revenue generated from those customers," said Somshubhro (Som) Pal Choudhury, Partner at Bharat Innovation Fund.

He suggested hiring a talented team with the necessary skills and expertise to execute and drive growth. "Be prudent on salaries and do not over-indulge."

Furthermore, Choudhary advised that startups with high valuations when they raised capital in 20-21 should concentrate on scaling their operations and meeting growth targets before seeking more funding. The time is right, highlighted Paramjeet Singh Makani, CEO of Pantomath CorpGini Innovations Pvt Ltd, for businesses to create value rather than place a premium on valuations.

Focus on distribution and GTM

As per Karan Verma, Co-founder and Director, FAAD Network, a key strategy for startups to navigate through the funding winter and ensure sustained growth is to focus on distribution and GTM, taking into account investors' opinions on the following pointers: maintaining low cash burn, having a runway of 18-24 months, establishing a path to profitability, and prioritizing long-term value creation over short-term plans.

Verma added that it's also crucial to ask for assistance from mentors, advisers, consumers, and vendors because having open and sincere conversations with these people can really help.

Cut down on all non-core activities

Umesh Uttamchandani, Co-founder of DevX Venture Fund, advised their portfolio as a whole to reduce any non-core operations that incur costs in order to lengthen the runway to at least 12 to 15 months during the fundraising winter. "At the same time, avoid going into hibernation mode and be aggressive in pushing sales."

These are trying times for all founders, according to Uttamchandani, and "optimising costs along with revenue expansion" is the obvious approach that would draw attention to raise money or create a viable firm.

Build strong relationships with existing investors

It's also crucial to establish trusting connections with current investors, as per angel investor Prateek Toshniwal. Investor confidence is increased via regular communication and open financial reporting, which also demonstrate the startup's long-term viability. "Utilising the knowledge and connections of investors can lead to new business opportunities or other funding sources, which is essential during a financial winter," he said.

Focus on continuous innovation

In order to stay ahead of the competition, startups must concentrate on ongoing innovation. Startups may demonstrate a strong value proposition and market relevance, gaining investor attention even in a hard funding environment, according to Toshniwal, by improving their product or service offerings and adjusting to market demands.

Diversify funding sources

Another important tactic to reduce the hazards of a financial winter is to diversify funding sources. Investigating possibilities like government grants, crowdsourcing, or strategic alliances can offer extra financing and assistance for long-term growth. In the end, Toshniwal continued, "perseverance and adaptability are critical qualities for startups during a funding winter."

Continuous visibility on cash flow and unit economics

Shrijay Sheth, an angel investor and the founder of Legalwiz, claims that there is a significant risk of money running out and a last-ditch raising at a depressed value if the company can't generate enough cash flow to support expansion at the current burn rate for at least the next 18 to 24 months.

The solution is to maintain a strong discipline around cash flow reporting and unit economics, as per Sheth. "Founders need to understand what their cohort level COGS (cost of goods sold), pricing and break-even - which shall ultimately define their appetite to spend on customer acquisition and growth."

Prioritise the customers

Prioritising the customers may be a better strategy to minimise financial problems. Sheth continued by saying that most companies adhere to the 80-20 rule, according to which 20% of all product SKUs, client personas, or channels earn 80% of all revenue. "Focus on creating immense value for those cohorts, and build a significant business around penetrating deeper," he highlighted.

Typically, it is far less expensive to sell a good or service to the same client again than it is to locate a new one. Sheth advised that, in order to boost average order value (AOV), generate cost-selling and up-selling opportunities, and establish reliable communication channels. "This will also likely result in building a clientele that acts as your brand advocate, and provide you with a fresh reach to their audiences."

As explained by Gaurav VK Singhvi, Co-founder of We Founder Circle, startups must be resilient, adaptable, and savvy in order to survive a funding shortage. Startups can overcome obstacles, establish sustainable growth, and create scalable enterprises around the world by utilising these tactics and keeping a long-term vision.

Sujata Sangwan

Former Sr. Correspondent

Sujata is an engineering graduate and has done her Post Graduation in Human Resource Management. She has a deep interest in startups, venture capitalists & technology. 
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