Tech startups have struggled to raise money this year, but industry experts warn that the funding winter could continue well into 2024.
Kalyan Krishnamurthy, CEO of ecommerce firm FlipKart, is the latest to voice his concerns about the perilous situation.
“This is going to be tough next year,” Krishnamurthy warned, TechCrunch reported. “My estimate is that a lot of startup founders will hit the market between April to June next year, and that’s the moment of truth for the ecosystem.”
He also cautioned startups to be ready to take huge valuation haircuts, such as buy-now-pay-later company Klarna, which this year suffered a down turn that shaved its valuation from $45.6bn to $6.7bn.
Tech startup funding has dropped in 2022
The news comes as tech funding has run dry this year. So far this year, the tech industry has raised $376.8bn across 14,834 venture financing, equity offering, private equity and debt offering deals, according to data from research firm GlobalData. That is a massive drop from the $981.3bn raised across 20,475 deals in 2021.
The industry is not just suffering through a drought of funding, but tech companies have also been forced to lay off employees in droves and others have simply collapsed.
Josep Bori, research director at GlobalData, tells Verdict that tech startups need to start refocusing their strategies in order to survive in a recessionary environment.
“This could include measures such as prioritising products and services with a shorter-term monetisation profile, reduce their cash burn rate and even pivoting their businesses,” Bori says.
In this environment, Bori says it is likely Big Tech companies will take advantage of startups developing great technology but that have run out of cash.
“Venture capital investors will also likely adjust their approach to investing into new companies, but most importantly on follow-on rounds,” adds Bori. “They will have to take tough decisions and cut losses on their investments, if they truly feel an invested company will not be able to make it to the other side of this recession.”