Indian entrepreneurs' strategies for navigating funding winter

In the dynamic world of entrepreneurship, one thing remains constant: the necessity for sound financial management. In particular, cash flow management often takes centre stage, especially during challenging economic climates like a "funding winter." For Indian entrepreneurs, navigating such periods requires ingenuity, discipline, and a proactive approach.

Understanding funding winter

Funding winter refers to periods when venture capital and external funding for startups and businesses slow down significantly. For entrepreneurs, this translates to a need for more resources to scale operations, develop products, or expand market reach. Such phases are not unusual, often influenced by global economic slowdowns, market corrections, or tighter monetary policies.

These periods are particularly challenging in the Indian entrepreneurial ecosystem, where the market is often highly competitive, and most startups rely upon venture capital. Though external funding catalyses growth, uncertainty in its availability emphasises the need to manage cash flow well.

Cash flow management

The inflow and outflow of funds within a business is called cash flow. The ability of the company to finance costs, salaries, and expansion is referred to as positive cash flow. The current situation with startups will witness crises shortly in areas such as needing help to pay employees or giving suppliers what the latter has already provided should cash flow be mismanaged.

With funding being more difficult to achieve, startups have looked at cash flow as the new prominent indicator of health. Where poor cash flow is likely to end up causing shutdowns, good management is a way of survival and succeeding in today's unfavourable environment. Another critical area is NBFCs, which offer adequate and quick financing for startups that ensure liquidity and operational stability.

Strategies used in managing cash flow

Indian entrepreneurs are using diverse strategies to run their cash flow smoothly. These proactive measures strengthen their ability to thrive during the funding winter and pave the way for long-term success.

1. Cost control and Operational Efficiency

The first step many entrepreneurs are taking is slashing unnecessary costs. Many startups have relied on high burn rates and rapid scaling, but now, operational efficiency is critical. Entrepreneurs renegotiate contracts, reduce overheads, and optimise their business processes to stretch their runway.

According to a PwC India survey, 68% of startups focus on cost control to manage the funding in the winter. From cloud-based solutions to downsizing office space, these changes are helping businesses reduce fixed costs while maintaining operational efficiency.

2. Diversifying revenue streams

Another effective strategy for improving cash flow is diversifying income sources. Reliance on one revenue stream can be risky, especially in uncertain times. Many Indian startups are introducing new business models, such as subscription services or expanding product lines. In 2024, Indian fintech startups are expected to generate over $12 billion, with a significant portion coming from non-lending products like wealth management and insurance. This diversification is helping startups hedge against cash flow volatility.

3. Optimise accounts receivable and payable

Managing cash inflows and outflows will determine stability. Entrepreneurship is now using digital tools to track how receivables reflect clearer terms with customers regarding payments. Digital invoicing means payment reminders that attract faster collection of cash in such a manner that overdue risks are lessened. According to KPMG, 60% of Indian SMEs use digital tools for cash flow management sources, which provide cash flow better-automated invoice tracking and payments.

4. Reconciling strategic development

The unsustainable "growth-at-all-costs" mindset is gradually replacing more sustainable methods. Entrepreneurs now opt for incremental growth, scaling modestly while emphasising profitability and operational efficiency. Instead of searching for high growth through rapid inorganic multi-geography expansion, some startups are optimising their approach for a single geography. Therefore, according to NASSCOM, many startups are achieving 15-20% better profitability in 2024, focusing on unit economics and over-aggressive expansion.

5. Utilisation of NBFCs

During funding winters, NBFCs have emerged as the most important funding source for startups. Their funding options are more pliable, and disbursement is faster than that of banks. Thus, by collaboration with the various NBFCs, working capital loans, invoice discounting, and other financial products can be accessed to manage cash flow.

The conclusion is that funding winter, while presenting clear challenges, also means Indian entrepreneurs can create more resilient and sustainable businesses. The entrepreneurs who spend time controlling costs, diversifying revenue streams, optimising cash cycles, and retaining customers will survive and thrive in this new era. So, while the funding winter presents new dynamics, India's most resilient entrepreneurs are here to stay, ready to pounce and build a prosperous future.

Santanu Agarwal, Deputy MD of Paisalo Digital Limited