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Saturday, February 4, 2023

Experts expect Budget 2023 to boost foreign funding for startups

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The funding winter made 2022 a tough year for entrepreneurs. Experts now say that Budget 2023 should boost foreign funding for startups.

According to experts, one significant trend that will continue in the Indian startup environment is mergers and acquisitions, with about 240 M&As occurring in 2022.

Due to the financial winter, 2022 was a terrible year for entrepreneurs. To combat rising inflation, central banks throughout the world hiked interest rates, making money more expensive. According to experts, this tendency will continue for late-stage startups over the next 2-3 quarters.

Ajay Jain, who co-founded Silverneedle Ventures now serves as its  managing partner.

He said, “The venture capital sector is responding to market cues; late-stage investment, in particular, has taken a hit, with a 70% decline in financing at that point in AY22 compared to AY21. “

This tendency is expected to persist for late-stage startups over the next 2-3 quarters.  The trend is really beneficial in the seed stage; huge funds are also deploying capital at this level, but values are more logical, and investors are looking at value-based measures.”

According to Jain, one major trend that will continue in the Indian startup environment is mergers and acquisitions (M&As), with about 240 M&As occurring in 2022.

If the budget establishes clear and open procedures for M&As, while guaranteeing capital gains for unlisted shares are handled at par (or actually cheaper) than listed shares, information technology would be extremely beneficial.

In 2022, Sequoia Capital, a renowned venture capital firm, advised portfolio company owners that the period of being rewarded for hypergrowth at any cost is fast coming to an end, with investors gravitating towards firms that can demonstrate present profitability.

“Capital is getting more expensive as the macro becomes less predictable, prompting investors to de-prioritize and pay less for growth,” according to the report.

Due to a lack of funding, entrepreneurs all around the world, including India, have resorted to layoffs to save money.

Pearl Agarwal, founder and managing director of Eximius Ventures, stated, “The year 2022 was a challenging year for entrepreneurs. To combat rising inflation, central banks throughout the world hiked interest rates.  This lowered the amount of money in circulation, which flowed down into private markets. When compared to subsequent rounds, early-stage trades escaped untouched.”

She also stated that plans for the forthcoming Budget are likely to stimulate abroad investments among Indian entrepreneurs, allowing them to really develop from India, for the whole globe.

Jatin Desai, co-founder and managing partner of Inflexor Ventures, said, “Venture capital in 2023 might best be defined as cautiously hopeful.”

Following a turbulent 2022, more investors are hoping to return to the private markets with huge sums of cash ready to be put in the venture capital arena.

Instead of high-growth, cash-guzzling start-ups, investors are increasingly looking for more sustainable company models with robust foundations.”

He noted that the government’s support for the start-up ecosystem during the last four years will hopefully be sustained and strengthened in the Budget.

Supporting core technological innovation is an area where India needs spend to create indigenous skills for sustainable future growth in the coming decades.

Desai explained, “This can take the form of a further expansion of the fund-of-funds programme, continued budgetary and regulatory support to AIFs for setting up and operating from GIFT city, allocation for the development of new technology incubators, grants for indigenous tech start-ups in critical sectors, and so on. Given the ecosystem’s maturity over the last decade, there is a rising expectation that private market profits would be taxed in line with public listed market gains.”

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