Teji Mandi Explains: Is startups boom fading?

Bet on startups is declining. In April 2022, investments in startups dropped 27% to $5.5 billion. Does this mean the boom is over? Let’s read!

Teji MandiUpdated: Monday, May 23, 2022, 04:36 PM IST
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What’s Happening?

In April last year, 8 startups became unicorns but this April saw no unicorn tags, signalling a direct slump. Silicon Valley’s famous startup Y Combinator has asked its founders to plan for the worst in the upcoming slowdown in funding. In India, big-ticket funding rounds have slowed amidst global meltdown in tech stocks and its after-effects in the private financing market. As a result private equity firms and venture capitalists are conserving cash leading to slow funding. This decision has already started to affect the startup ecosystem. Cars24 fired 600 employees while Meesho let go 150 employees last month. Edtech firm Unacademy has let go of more than 1,800 contract-based and permanent employees.

In the US, Limited Partners (LPs) who pour capital into VC funds are pulling back. Hence, VCs are forced to cut back investments. They are parking their big bets in safer companies instead of investing in startup companies.

Should We Be Concerned?

As per the experts, the slowdown is restricted only to the growth stage and is likely to recover as the markets settle down. Meanwhile, India’s valuations are currently high right now and the days of easy money for Indian startups is over. Companies will now have to show a clear path to profitability or else shut their shop.

What Lies Ahead?

Global monetary tightening and the war between Russia and Ukraine has toppled all the rising sectors. Everything is volatile right now and everybody’s looking to save rather than invest. Looking at the war and the after-effects, it is likely that it will impact the global economy. Hence, there’a temporary slowdown in funding and at every nook and cranny of the economy.

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