What is Funding Winter?

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Investments from large foreign investors, like Accel, Peak XV Partners, Tiger Global, and Softbank, fell by as much as 80 per cent on average in 2023, amid the Indian startup ecosystem’s so-called funding winter.

About Funding Winter

  • Funding winter refers to a period of market correctionin capital inflow, which lowers the probability of startups getting higher valuations in the short to mid-term.
  • Simply put, founders find it difficult to raise funding and achieve sky-high valuations.
  • It often leads to investors avoiding firmswithouta set path chalked out for profitability. This, in turn, prompts a need to correct the value of the start-up.
  • Further, one of the prominent effects of funding winter is that it requires business owners to reset their priorities in terms of profit maximization.
  • Effects:
    • With the funding winter in place, start-ups resort to measures which help them save their working capital, as the expectations of funding from investors are minimal. 
    • The advertisement expenses, capital expenditures, and expansion plans are put to a halt in order to increase the sustainability of the firm.
    • Only the expenditure essential to the survival of the firm is undertaken, and all possible steps are put in place to ensure unnecessary expenses.
  • Funding winter is not a new concept but a cyclical effect that happens due to multiple factors which impact the free flow of investments in the market.
  • These factors may either be generically applicable to the entire market, such as geopolitical unrest in countries, monetary policies, or financial irregularities, or may be centric to the relevant sectors.

The duration of a funding winter is unpredictable, and it may last for a long time depending on the multiple factors acting upon it.

Q1: What are capital expenditures?

A capital expenditure, or Capex, is money invested by a company to acquire or upgrade fixed, physical or non consumable assets. Capex is primarily a one-time investment in non-consumable assets used to maintain existing levels of operation within a company and to foster its future growth.

Source: Bets from big global VC firms fall 80% in India in 2023 amid funding winter