When the going gets tough, early-stage start-ups get going

The emerging trend of early-stage startup investment is poised to strengthen the entrepreneurial ecosystem in the country in significant ways. 

When the going gets tough, early-stage start-ups get going
Global investors are shifting their focus from minting unicorns to writing cheques for early-stage startups in India. 

By Vivek Kumar

Recent reports on the funding crunch and layoffs in the startup sector paint a rather gloomy picture. The Russia-Ukraine conflict, spike in inflation, and rising interest rates have hit investor sentiment worldwide. India is not an exception. 

However, the Indian startup reality is not as dismal as it may seem based on the current narrative. As the third largest startup ecosystem in the world (after the US and China), India has good reason to be optimistic. Global investors are shifting their focus from minting unicorns to writing cheques for early-stage startups in India. 

In 2021, early-stage funding crossed $1 billion in the country. In spite of the funding slowdown this year, young Indian startups in our portfolio have managed to raise funds. Beatoven.ai, an AI-driven music tech startup, raised $1 million as part of its seed round earlier this year, while Expertia AI, a deeptech virtual recruitment platform, secured $1.2 million and Flippy, a crypto investment startup, raised $1.15 million. The emerging trend of early-stage startup investment is poised to strengthen the entrepreneurial ecosystem in the country in significant ways. 

Small is impactful  

The investor community, including high net worth individuals (HNIs) and ultra-high net worth individuals (UHNIs), see early-stage startup investments as an asset class with high returns. Even as they go slow with the big-ticket transactions this year, early-stage deals are likely to happen at a promising pace. 

Startups that are early in their life cycle, across industries, such as fintech, healthcare, retail, real estate, video streaming, agriculture, edtech, crypto, logistics, shipping, and insurance, should benefit from the current market sentiment. It’s a viable proposition for investors to buy equity early and reap healthy returns as the company progresses and scales.

Businesses that offer viable solutions to compelling real-world problems, showing a clear path to profitability, with proven revenue models, can get investors to believe in their mission. Startups using state of the art technologies such as Natural language processing (NLP), Machine learning (ML), blockchain, Virtual reality in areas such as SAAS, Web3, supply chain logistics, consumer tech certainly have an added advantage.

Future ready 

As most startups brace themselves for the funding winter and look for ways to extend their runway, or hit the pause button on ambitious growth plans, it’s important not to be disheartened by all the negativity. Ups and downs are inevitable – in life and in business. Those who learn to maintain equanimity amidst the ups as well as the downs are the ones who thrive. 

The focus must be on building sustainable businesses that create employment, and significant value for both investors and society. While investors back new founders, young entrepreneurs must embrace resilience in order to build their dream startups. Only then can they tap into new opportunities to bring cutting-edge innovation from lab to market.

Every challenge is also an opportunity. Right now, India has a huge opportunity to foster an entrepreneurial ecosystem where early-stage startups are nurtured and provided strategic support to lay a strong foundation for successful business ventures. With more than 60,000 startups in the country, the best is surely yet to come. “If winter comes,” as the famous poet put it, “can spring be far behind?”

(The author is Fund Manager, Entrepreneur First – India. Views expressed are personal and do not reflect the official position or policy of Financial Express Online. Reproducing this content without permission is prohibited)

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