How small businesses can survive a long funding winter

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2021 was a landmark year for start-ups in India, with the booming sector attracting a record high of $38 billion in investments. The coronavirus pandemic and work-from-home trend accelerated the rapid growth of India’s digital sector, helping to fuel investor interest. 44 start-ups in India became “unicorns”.

In the first eight months of 2022, Indian start-ups raised $20.82bn in funding, down 17 percent from the $25.3bn they attracted during the same period in 2021. (Inc42)

Only four Indian start-ups entered the unicorn club in the second quarter of 2022.

A funding slowdown has hit start-ups across stages, whether for growth-stage companies unable to raise new funding or early-stage start-ups that have to settle for lower-than-expected valuations and fund sizes. 

Reason:

The liquidity crunch is an aggregation of multiple factors—global supply chain disruptions owing to lockdowns, the Russia-Ukraine war, meltdown in the world tech stocks, and spike in inflation and consequent hike in interest rates.

Venture capital and research firms predict the funding winter to last between 12-24 months. The funding slowdown has normalized the frantic valuations and fund sizes raised by start-ups in 2021, which is a positive sign according to investors.

Tips for Entrepreneurs to survive the funding winter:

Here are a few best practices for business owners to manage risk across business operations and identify opportunities for future growth in these challenging times:

•  Reassess your deals and obligations: It is important to reevaluate your company’s financial health and your obligations and connections to customers, prospects, and suppliers so you can quickly scale back or change operations as needed in the face of any economic uncertainty that arises.
• Make cash-preserving and data-driven decisions: You are facing a cash crunch and need to avoid decisions that cost you any of that precious cash. You need to leverage data and insights to drive your decisions and enable efficiencies in your business.
• Establish and monitor your business credit. To grow your business, you will likely need access to capital (loans, lines of credit, or credit cards, for example), and business credit is how lenders decide how much you will get. In the case of an economic downturn, you might also need an emergency loan just to keep yourself in business, so it’s vital to have that business credit established in advance.
• Rethink (and innovate) your go-to-market, product, and service delivery model. Think about whether you can pivot to offering alternative solutions during this time. You can also think about alternative means of commerce that can increase sales.
• Prepare for the worst and plan for the best: Always maintain an emergency cash fund. Even if you have good business credit and can receive government funding, such things take time. You want to be able to pay for the necessities while you wait for more substantial funding to arrive.

Conclusion:

There is no doubt small businesses are currently bundling up for a long, cold winter with many unknown circumstances ahead. But by using this time to prepare, plan and possibly even restructure, brighter days are on the horizon.

About the author:

Joe Pascaretta is General Manager of Small Business at Dun & Bradstreet, overseeing the company’s small to mid-size business portfolio.