Want to start a business but afraid of funding winter? Here’s why it can be a blessing in disguise

Dinesh Agarwal, who started IndiaMART.com (now IndiaMART InterMESH) in 1996, thinks there has never been a greater time than now to start one’s entrepreneurial journey.

A significant drop from a whopping record $38 billion in startup funding in 2021 to $25 billion in 2022 may have cautioned aspiring entrepreneurs to hold their plans to build their dream businesses just yet. This is especially because securing funding for the initial capital required to get a business going generally comes from VCs (Venture Capitalists). However, Dinesh Agarwal, who started IndiaMART.com (now IndiaMART InterMESH) in 1996, thinks there has never been a greater time than now to start one’s entrepreneurial journey.

Message to new entrepreneurs

According to Agarwal, the internet and mobile phones have penetrated to a deeper extent in the last two to three years, especially post the COVID-19 period. “With lesser funding, you will be able to build a more long-lasting business, it’ll be a more rational way to build a business. You probably won’t feed on unnecessary competition, so it’s a great time to start a business,” he told CNBC-TV18 on the sidelines of the India Digital Summit 2023 in Delhi on February 20.

According to him, while growth may be slower initially given the macroeconomic uncertainties at hand, early entrepreneurs need not worry about growing 40 to 50 percent right in the starting years, because when they compound that over the next 10 years, it’ll still be quite high.

In fact, Tracxn data cited by a media report shows that funding for early-stage startups increased marginally to $8. 2 billion in 2022, from $7. 1 billion in 2021. Seed-stage startups, on the other hand, got a total of $1. 7 billion in 2022, marginally lower than $1. 8 billion in the previous year. Funding for late-stage startups however, saw the real hit, 28 percent to $24. 1 billion from $33. 6 billion, the report said.

‘Funding is very overrated’

In the discussion moderated by Apurva Chamaria, Head of Startups and Venture Capital, Google, at the event organised by the Internet and Mobile Association of India (IAMAI), Agarwal recalled the time he started his business when getting one’s money to make big losses was not a concept.

According to him, funding is a very overrated inspirational thing. “Even today, if you go to Noida, every third building is running some or the other IT, mobile outfit (business). Not even a percent of them are actually funded or need funding… Some of the companies that get listed around the world, whether it is on NASDAQ, BSE or NSE, how come they never took any funding before going public,” he pointed out.

Most businesses are created in a manner which does not require external capital and is self-sufficient, he said.

‘Customers can fund businesses’

He believes that even today, given that the market has grown 10X, whether one makes any kind of software, be it a website, mobile apps, automation or for banking digital marketing, or any other, there’s enough market that customers can fund businesses.

“If you mix a little bit of marketing and sales along with your technology, and understanding, most of the time customers should be able to fund your business. Customers’ revenue should be able to fund their business, he said.

Agarwal added that there is a huge market if one can find the right kind of product, market fit or service that customers are willing to pay for. “You might have to run a little slower. But that’s about it. When funding comes, you run much faster but when you run faster, there’s always the chance of an accident. It’s okay to be going slow but steady,” he suggested to entrepreneurs.

When will there be a slowdown in startup layoffs?

According to reports, over 21,000 startup employees have been laid off in the past three to four months as firms look to stave off challenges posed by the funding winter, recession fears and in a bid to become profitable.

IndiaMART’s Agarwal noted that the total employed population in the entire IT industry is about 20 million and less than two lakh people (overall tech space) have been fired so far and that’s very cyclical in nature. There’s a continuous long bull run for the IT industry for the next 20, 30, and 40 years, so need not worry about it.

“I’m more worried about the current batch that’s going to come out in June-July, more than 20 lakh people will come out of college, and they might find it hard to get their dream job,” he said.

He said, for graduates, it’s important to settle in companies where they find opportunities and that everyone will have to tone down expectations a little.

“The industry has been offering 20 percent plus salary raises for the last seven odd years. In the last three years, salaries have almost doubled but the industry has not been able to sustain that, so the expectations will have to be moderate for a year or two, he said.”

Job opportunities at startups

Agarwal explained that the startup ecosystem is not going to be eradicated, it’s just that there will be 5-10 percent less number of companies or people.

He believes one is still better off joining a smaller company and learning much faster than probably a million+ employee behemoth.

“It’s a trade-off, depending on what you like. In larger corporations, you would learn systems, processes, and complex projects. In a startup, you’ll learn hustle. and I think it’s always good in the first five years to see both sides of the world,” he said.

Reflecting on salary hikes, he said, in the last five to seven years, yearly increments have been much more double or triple than inflation and even today, it is going to be higher than inflation for sure.

He cited the example of the US, where employees are given a four-five percent increment per annum, which is just 1 percent above inflation. “In India, since the last six to seven years have been really good for the startup culture, people are not aware of the reality, it should be fine in a year or two,” he said.