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The way founders approach VCs, and vice versa, has changed with the slowdown in 2022 venture funding, or “funding winter.” Deal flow is significantly reduced and VCs are very selective about their investments. Although investment is still down 69% year-on-year, Indian start-up capital experienced its first rise of the year in October after nine months of low activity. The Indian startup raised $1.08 billion in October 2022, a 39% increase from September 2022, according to data provided by Tracxn.
Given that the macroeconomic environment remains as uncertain globally as we are about the trajectory of inflation and interest rates, the picture is still uncertain for a significant recovery in the near term. Valuations are still largely subject to a volatile and plummeting public market, so cash flow is likely to remain low. In such scenarios, how can entrepreneurs make the best investment decisions?
2023 for Entrepreneurs: Finding Dynamic Investment Areas
Despite a decline in funding deals, early-stage funding increased in 2022 as deal size increased. Early-stage venture capital investment in India increased by more than 28% from $1.17 billion to $1.5 billion in Q1 2022, according to Tracxn analysis.
Transactions are still taking place, but the widespread quotas that were widespread just a few months ago have slowed significantly. As such, investors no longer focus on early-stage funding. Instead, they see late-stage startups as a viable investment option with a clear path to profitability.
Focus on late-stage companies
The venture capital industry has long viewed early-stage startups as the most preferred destinations for generating the highest returns. In an age influenced by technological advances, investors are now looking to invest in late-stage companies with predictable business models, such as technology-based startups. Late-stage investments are often valued better than early-stage investments over the long term because they are inherently much less risky than early-stage companies.
India has overtaken China in late-stage funding in 2021, according to a Business Today report. India’s share of global late-stage funding has also increased from her 5.7% in 2019 to around 10.5% in her 2022. These statistics are good indicators. Accelerating later-stage investments as there are established, primarily funded companies in the market that are less risky than investing in early-stage start-ups and their investments can be converted to cash more quickly doing.
Examination of tech startups
In recent years, investors have increasingly bet on start-ups with a “horizontal” or cross-industry focus. Technology has played a key role in the venture capital investment boom of the last few years. From 2010 to 2020, most of the venture funding from independent and corporate venture capitalists went to tech start-ups, according to Bain & Company analysis. This indicates that investors and business owners are moving past the naive stage and following a more systematic innovation path to gain a clearer opportunity for return on investment.
After the pandemic, the use of cutting-edge technology in startups has increased. As the need for the ability to seamlessly distribute workloads across different computing environments grows, many companies are increasing their spending on his SaaS tools, AI, ML, cloud, IoT, and other areas of operations. . Entrepreneurs can consider investing in technology-based start-ups, as disruptive inventions typically drive new growth opportunities.
Create a targeted portfolio
Despite global economic uncertainty, now is the right time for venture capitalists to build long-term value. For entrepreneurs with access to long-term capital, the current environment is perfect for building portfolios. In contrast, later-stage venture capitalists need to understand the new criteria and recalibrate their portfolios to account for markdowns in their existing portfolios before they can determine their willingness to invest.
VC leaders may wish to invest well above industry standards, but this strategy should be followed carefully. They should update their investment themes based on what they have learned and invest in the businesses that best fit their strategy in 2023.
all things considered
This is a difficult time for venture capitalists and the companies they fund, and some industries will be hit hard, especially after 2022. But while some industries are shrinking, others are steadily expanding. All you need is to find the right investment in a niche market that is expected to grow in 2023.
If it takes longer than 6-12 months for positive economic signs to emerge, VCs may see significant market despair as start-ups begin to run out of capital. If that despair comes hand in hand with an economic upturn, there may be a sweet spot for VCs, but whether it will come to fruition is still confusing.
Kishore Ganji is the founder of Astir Ventures.
[Disclaimer: The opinions, beliefs, and views expressed by the various authors and forum participants on this website are personal and do not reflect the opinions, beliefs, and views of ABP News Network Pvt Ltd.]
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