Funding Winter

Source– This post on Funding Winter has been created based on the article “Bets from big global VC firms fall 80% in India in 2023 amid funding winter” published in “The Business Standards” on 9 April 2024.

Why in the news?

Investments from large foreign investors in Indian startups has declined by 80% in 2023. This is because of Indian startup ecosystem’s funding winter.

About Funding Winter

Description– It is a term used to describe a period of reduced capital inflows to startups. It is a cyclical effect that happens due to multiple factors which impact the free flow of investments in the market.

Duration-The duration of a funding winter is unpredictable. It may last for a long time depending on the multiple factors acting upon it.

Factors responsible for funding winter– It can take place due to geopolitical unrest, or monetary policies and financial irregularities in a country. It can also be centric to the relevant sectors.

What is the effect of Funding Winter?

1) It is difficult to raise funding and achieve sky-high valuations during funding winter for founders.

2) It requires business owners to reset their priorities in terms of profit maximization.

3) During funding winter, start-ups take measures to save their working capital.

4) Expenditures like the advertisement expenses, capital expenditures, and expansion plans are put on hold in order to increase the sustainability of the firm.

Note-
Capital Expenditure- It is money invested by a company to acquire or upgrade fixed, physical or non-consumable assets.

Read more- Prabhaav Report on performance of Fund of Funds for Start-ups (FFS)

UPSC Syllabus-Indian Economy