India’s startup scene, which is dotted with landmarks, has grown significantly over the past forty years, allowing a number of new sectors and companies to flourish. India currently has the third-largest ecosystem in the world, with more than 77 000 startups, including more than 100 unicorns, calling it home. The rise of information technology and innovation marked the beginning of the tale of Indian startups. TCS, Infosys, and Wipro, three leading IT businesses of this century, are outstanding examples of how to foster the notion of investing in technology and bring together the nation’s brightest young brains to establish an industry that employs about 4 million people.
It may be an exciting journey filled with passion, ambition, and the desire to succeed to launch a new company. To assist them stay competitive, startups in today’s market have a robust angel network and the support of venture capitalists (VC) or private equity (PE) firms in the ecosystem. Between 2015 and 2022, the Indian startup ecosystem saw increases in the total amount of investment, the number of investors, and incubators of 15x, 9x, and 7x, respectively. Although investments decreased by 75% in the first quarter of 2023, it is the longest financial winter the industry has ever experienced.
The huge tech corporations were also previously start-ups, but what paved the way for their success? Did they encounter a finance difficulty as well? When the supply of easy money is dwindling, what is the secret to making a business sustainable? When forced to fire staff and reduce expenses, every startup founder would ask these pertinent concerns.
To maintain an advantage in the race, first grasp the fundamentals.
Cash is the driving power behind the startup machinery, helping business owners to turn their concepts into reality. An organization’s financial health, stability, and sustainability are largely determined by its cash burn and runway, which are essential components of financial planning. Startups can develop sensible decisions and successful strategies to meet their financial objectives by studying these data. It offers perceptions into the effectiveness of cash utilization, the sufficiency of cash reserves, and the capacity of the business to provide stable revenue. Startups can detect potential risks and take proactive efforts to mitigate them by routinely monitoring these data.
Steps businesses can take to better manage their cash runway
Startups should concentrate on demonstrating the feasibility of their business model before expending more money in order to assure long-term profitability. Targeting particular cohorts or market groups and aiming for a return on capital of more than 20% will help you achieve this. It is advised to make the difficult choice to shut down and reallocate resources or return money to shareholders if the route to profitability is not clear. If the business idea is tested but more funding is required, raising capital at a lower valuation is appropriate.
It is critical to keep an eye on cash flow, collections, expenses, and bank covenants to prevent unforeseen circumstances. The amount of unbilled revenue that leaks out should be kept to a minimum, and profitability should be examined at different levels to spot any oddities. It is vital to implement cost-cutting measures, such as removing pointless subscriptions, closing down underused facilities, and streamlining the personnel. Prioritize communication and transparency with stakeholders while coordinating key management members on a turnaround approach. Startups can make educated decisions by consulting with financial experts, among other things.
Startups also need a contingency plan to deal with any unanticipated costs or scenarios when there is a revenue shortfall. This can entail putting cost-cutting strategies into action or actively looking for new financing sources.
Conclusion
To maintain their survival and growth, startups need to understand their capital burn and runway and manage properly. Startups can improve their chances of success and survive the fundraising winter by carefully controlling capital burn and extending the cash runway. To get through the startup marathon, it is essential to prioritize financial discipline, optimize spending, and put good cash flow management tactics into practice.
