Startup funding winter: Indian startups begin reducing burn rate with 70% funding drop

The funding winter is now forcing the Indian startups to redue their burn rate, said a report by Redseer. Since FY22, the funding to startups has dropped 70%.

Burn rate represents the speed at which an unprofitable company consumes its cash reserves. In the case of a startup company, it is the rate at which a new company is spending its venture capital to finance overhead before generating positive cash flow from operations.

Indian startup ecosystem had experienced a sharp funding peak during FY22, receiving a total of $50 billion. In FY23, there was a 70% drop in funding to $15 billion, owing to the macro economic conditions.

"The increasing cost of capital and interest rates, recession in developed markets, a decline in the value of tech stocks, and the slowdown in consumer internet growth have all been challenges for sustained funding. Consequently, startups are focusing on expediting their path to profitability and reducing burn rates," said Mohit Rana, Partner at Redseer.

Startups are resorting to various methods to reduce burn rate. For instance Paytm launched new products, expanded into new business segments, and upsold/cross-sold to existing customers to increase revenue per customer and reduce Customer Acquistion Cost. Likewise, Zomato increased take rates from restaurant partners and delivery costs from customers.

The strategy consultant firm Redseer also noted that by Fy27 the number of profitable unicorns will grow to 55 from 30 in FY22. As per the report, the Unicorns battling funding changes, valuation drops and slow growth will either shift to new models, get acquired, or shut down. There were 68 loss-making unicorns in FY22 which is expected to fall to 43 in FY23.