Global startups hit by funding winters, VCs move to sidelines
The Government is set to support Indian Fintechs with grants ranging from Rs.15 lakh to Rs.75 lakh from early next year, as global startups face a tough financial scenario, the funding winter and cold shoulders from the US recession-hit Venture Capitalists.
The International Financial Service Centre Authority (IFSCA) has started receiving applications for the grants and expects to start giving money to the local Fintechs early next year, IFSCA Chief Technology Officer Joseph Joshy said.
“Three grants are focused on the bootstrap innovators while we have a grant each dedicated to Green FinTechs, Accelerators and for Listing on the International Exchanges at International Financial Services Centre,” Joshy said to fiinews.com.
“We have an external committee which will be looking into these applications for grants under the IFSCA Fintech Incentive Scheme, 2022.
“Probably, from early next year, the grants will start flowing,” he told Press Trust of India on the sidelines of Singapore Fintech Festival (SFF) held 2-4 Nov 2022.
Joshy said the grants are timely but cannot be compared to Venture Capitalists’ (VCs) investment sizes that run into millions of dollars.
Industry observers at SFF said the funding winter, hard hit by the US recession, will see some 50-60% of the startups wiped out. These would include Fintechs which are subsystem of the over-valued startup gamut, said the observers, referring to the funding winter, a term widely used by the industry on funds slowing down for startups and Fintechs.
Hopefully, the impact of this funding winter would not be as bad as the “Dot Com” crash of the 2001, they added.
The startup network will go through a correction, believes Julie Fergerson, CEO and Co-Founder of the Seattle-headquartered Merchant Risk Council.
“There is an industry wide correction for some of them are overvalued,” she said at the SFF.
But Fergerson also noted that scrappier startups, which provided most value from their business ventures, rose to the top quicker from the past recessions.
People are already finding it difficult to raise funds and some of their startup valuations are sky high, according to observation by Poorna Nayak, Bangalore-based co-founder of EnrichVideo.
“People will have to tone down their expectations because funding won’t come easily.
“Investors’ focus will be on profitability now on,” added Nayak who exhibited her EnrichVideo at the SFF.
This time around, VCs are going to be tough on placing their dollars in any startup. The VCs will do a thorough due diligence before considering any financial backing for a startup that demonstrate a profitable model and is not likely to drag locked in capital.
Startups demonstrating innovations requiring long-term capital lock-in will not be considered, said sources at the US-based VCs, facing tougher economic recession in the American financial markets.
“Investors have been disappointed with some of the startups,” added a Singapore-based banker, speaking anonymously.
He expects more than 50% wipe out of struggling innovators.
Startups with strong business models and genuine profiles will be able to convince VCs, especially for seed funds and Series A funds, which are most required during critical incubation.
“There are concerns that VCs will pull out or back out from their earlier commitments,” said one industry observer, noting the absence of some common exhibitors at SFF, perhaps for financial reasons.
“We have seen a lot over valuation of startups and Fintechs,” the banker said. “Good times for funding innovations are over. It is better to keep money in the banks where interest rates are going up.”
Market sources believe 80 per cent of the startups are displaying weak innovations and business models while less than 5 per cent have succeeded to a certain level.
Startups and Fintechs that have not created a market niche for themselves will be eliminated from the competition for funds, said the sources.
The US recession, the US-China trade war, uncertainties in Europe as well as the Russian-Ukraine conflict are already impacting global economies. fiinews.com
