Valuation for Startups in 2023 – Current Trends

The year 2021 was regarded as the best one for Indian startups. The industry was capable of lapping up around $42 billion across more than 1,500 deals out of pioneering investors. However, a number of factors related to macroeconomic uncertainties -including hikes in the interest rates, the Russia-Ukraine disturbances, the overall fear of predictable recession this year, and volatile capital markets, led to the downfall of startup funding in 2022. It only reached around $25 Billion. According to the experts, it is believed that 2023 will be no relief either.

As per a study analysis, it is believed that the startup ecosystem in India can observe around 370 deals with respect to growth-stage startup funding in 2023 -up only about 4.34 percent as there were around 354 funding deals in 2022. Moreover, the amount of funding for growth-stage startups could reach around $7.4 Billion in 2023 -around 3.9 percent less than the amount reached in 2022 ($7.7 Billion).

Leading Growth-stage Funding Trends in 2023

As per the reports of the Annual Indian Startup Funding, growth-stage startup funding fell down a minor 4 percent YoY to around $7.75 Billion in 2022 from the amount of $8.1 Billion in 2021. However, between the period of 2020 & 2022, with 2021 as the exception, the pre seed funding trend for growth-stage startups was a whopping 273 percent in 2022 -in comparison to only $2 Billion increased in 2020.

Profitability of Startups to be Important for Growth-stage Funding

During the peak of the pandemic, the significant runup in the valuations throughout the startup ecosystem of India got accelerated by investors having access to huge amounts of capital. It is because too much money is invested into a limited number of relevant assets.

Experts believe that only startups having a valuation above the mark of $500 Billion while being focused on the overall profitability will be successful in securing more funding in 2023 & even beyond. Therefore, in the period of upcoming 2-3 years, if businesses are not able to provide potential investors the value of the investments, then it becomes difficult for the founders to raise the overall money.

Moreover, experts believe that for organizations having a valuation between $100 million & $500 million, it will be difficult to imagine successive fund raises this year. The investors will take up a cautious approach as well as ample time in due diligence.

Strong Potential for Sustainability and BharatTech Startups

Sustainability startups continue solving world-changing issues. With ever-rising awareness and improved support from larger enterprises and governments of the world, there is a stronger potential for continued growth of the startup organizations in this industry.

Eventually, BharatTechs or startups that serve the pressing needs of the general public who were conventionally not served, is yet another leading domain that experts believe will thrive. With improving digital penetration, better socioeconomic conditions, and increasing awareness amongst consumers across villages and towns, there is a stronger market of potential consumers that will continue driving growth for the startups understanding and solving their pressing needs.

Focus of Startups Shifting to Grassroot Challenges

Experts in the industry believe that the startups that will grow in 2023 will be those whose products or services will be rooted in the development of emerging hubs while solving common challenges at the grassroot level. In this aspect, growth-stage investors will most likely focus on deeptech startups that operate in core areas -including Artificial Intelligence, enterprise-tech, 5G, Climate-tech, privacy, and cybersecurity.

Conclusion

If 2022 was the period of paradigm-shifting dynamics, 2023 can be regarded as the year when winners in the startup domain can be identified. More importantly, it will be the year when crispier and more robust methods for evaluating the overall success will evolve.

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