Words like “layoffs,” “shutdowns,” and “funding crunch” have become synonymous with the tech startup world in recent months. As data about startup funding in 2022 trickles in, these trends have only been reinforced.
In 2022, startup funding in India fell by 40% year on year, according to Inc42’s startup funding report. Pakistan’s startup funding fell to $15.15 million during Q4 of 2022, making it the worst quarter since Q1 of 2020, according to Data Darbar, a Pakistan-based data intelligence platform.
These figures must make entrepreneurs across the region nervous and anxious. But some early-stage investors I spoke to last week gave me hope.
Yagnesh Sanghrajka, co-founder and chief financial officer of seed-stage venture capital fund 100X.VC, said that what’s happening right now is partly a correction after the euphoria of 2021 and early 2022, when many Indian startups raised back-to-back funding rounds, with their valuations increasing substantially each time.
“In every [business] cycle, there are corrections that happen, and this correction cycle is being called funding winter,” Sanghrajka said. “But it’s a winter, right? It’s not doomsday! So after winter, you always get sunshine.”
Kalsoom Lakhani, co-founder of Pakistan-focused VC fund i2i Ventures, also thinks that not all hope is lost. “In 2023, the funding slowdown will likely continue, though our belief is that good companies with strong business models (i.e., not burning lots of cash indefinitely) will still be able to raise in the coming year,” Lakhani wrote in i2i Ventures’ year-end roundup.
Both Sanghrajka and Lakhani, in fact, believe this funding winter may eventually have at least one upside: more realistic valuations.
Lakhani wrote that startup valuations in Pakistan will “go down to match the Pakistan market realities, which will be necessary given the waning international investor appetite.”
“These are very good times to actually invest in good founders,” Sanghrajka said. “If you are a smart investor … [you know that] the best investments happen in such times. You actually get good companies at better valuations than you would have otherwise gotten if it was not winter. So though people are taking more time to do diligence, they are deploying and they will deploy.”