As global economic conditions remain unfavorable and focus shifts to profitability over growth, founders are bracing for a tougher fundraising environment in 2023. According to a report by venture debt firm InnoVen Capital, they are putting off or dropping their global expansion plans.
Over half of the founders surveyed believe that the fund-raising environment will be tougher in 2023. Consumer brands and fintech founders are the most optimistic about the funding environment in 2023, while commerce, fintech, and enterprise SaaS founders had the most favorable experience in 2022.
An increasing number of founders 41 percent in 2022, up from 27 per cent in 2021, consider the ability to provide follow-on funding as a key factor in choosing a lead investor.
Indian start-ups' global aspirations have also taken a hit. Less than half of the surveyed founders plan to grow outside the Indian market, compared to 61 percent of those who had overseas expansion plans in 2021.
More than 29 per cent of the surveyed founders ranked edtech as the most overhyped sector followed by crypto 17 per cent and fintech 15 per cent, while healthtech and agritech 11 per cent each were chosen as the most under-hyped sector.
Profitability gains significant importance unlike previous years when growth was a priority, according to the study. For the first time in seven years, founders had higher biases for profitability over growth, as 55 per cent of the surveyed founders stated profitability as a bigger focus area, compared to only 17 per cent in 2021. Nearly 19 per cent of founders say they're EBITDA profitable, while 62 per cent want to make EBITDA profitable in the next 2 years, up from 51 per cent last year. In growth late-stage, 70 per cent of founders have higher focus on profitability, a rise from 14 per cent in 2021, while bias for growth has slowed down to 67 per cent in 2022, from 80 per cent in the previous year. Profitability and product market fit are two of the top priorities of a founder in 2023.
Despite the recent volatility of tech stocks in the public market, Indian founders are now looking for a domestic Initial Public Offering IPO as the likely mode of exit. 63 per cent of founders chose a domestic IPO listing as the preferred exit option compared to 58 per cent in 2021.
The expected timeline for exits for most founders is in the 3 5 year horizon. Only 15 percent of founders expect an exit event in the next two years, while 22 percent are unsure about exit timelines.
With just 38 per cent of founders expecting a higher hiring pace, it's expected that hiring will slow down. The founders of Enterprise SaaS and Agritech were the most bullish about hiring. The survey also highlighted that hiring good talent is a challenge for founders.
It is a challenge to increase gender diversity, and trends are in line with last year. 67 per cent of the companies have fewer than 20 per cent of women in leadership positions, and 38 per cent had fewer than 10 per cent of women leaders.
The report surveyed 120 founders across sectors and stages of which 61 per cent run growth late stage companies and 39 were early stage companies.
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