Surya Mantha, Unitus VenturesAmidst the evolving dynamics of India’s startup ecosystem, the term ‘funding winter’ has become a buzzword, signifying the challenges and transformations that startups are currently navigating. In this illuminating interview, Amit Singh had the privilege of engaging in a candid conversation with Surya Mantha, Managing Partner, Unitus Ventures. With a wealth of experience in the startup investment realm, Surya delves deep into the factors underpinning the funding winter phenomenon, its repercussions on startups, and the strategies that successful entrepreneurs are employing to not only weather the storm but also flourish. Exploring a wide spectrum of subjects, from the role of incubators, accelerators, and venture capital firms in supporting startups during these times to the emerging alternative fundraising methods, this interview provides a comprehensive understanding of the intricacies shaping India’s startup landscape.

Amit Singh: What were the major factors that contributed to the funding winter in India’s startup ecosystem?
Surya Mantha: The funding winter in India’s startup ecosystem can be attributed to several factors. Central banks across the world adopted expansionary monetary policies to address the recessionary impact of the pandemic. This led to significant investments flowing into alternate asset classes, such as private equity and venture capital. As has been the case in the past as well, this resulted in an unsustainable surge in startup valuations. However, as the impact of the pandemic subsided, central banks raised interest rates because of spiraling inflation, signaling the end of easy money. Of course, investments in private companies dried up. To make matters worse, geopolitical tensions from the Russia-Ukraine war added to the uncertainty and risk aversion. Investor sentiment towards the startup ecosystem plummeted as a result.
In the last several quarters, there have been significant markdowns in inflated valuations, leading to a more rational approach in the market. This shift has brought about a renewed focus on profitability and sustainable growth for startups. While early-stage investing remains robust with competitive deals being funded, later-stage deals have become more challenging. Investors now demand startups to demonstrate positive and sustainable unit economics. As startups progress to Series A and beyond, investors demand proven ‘Product Market Fit’ (PMF), a scalable business model with a clear path to profitability.
Amit: Can you identify specific industries or sectors where startups have witnessed substantial growth despite the funding winter?
Surya: Despite the funding winter, startups with compelling value propositions, strong execution capabilities, and product-market fit have managed to grow.
SaaS companies, for example, attracted investors with their cash-generating models. According to a report by Chiratae Ventures and Zinnov, Indian SaaS start-ups successfully secured thrice the amount of funding in 2022 as compared to 2019. The overall funding to the sector increased from $871 million in 2019 to $2.7 billion in 2022. Apart from SaaS, non-consumer fintech and artificial intelligence startups also attracted investors.
At Unitus Ventures, we have always believed in investing in sectors that demonstrate resilience and potential for growth. We continue to stay focused on investing in Jobtech, Fintech, Climate, and SaaS. Our particular focus is on companies that are proactively using Generative AI to become more efficient and effective.
Amit: What role do incubators, accelerators, and venture capital firms play in supporting startups during the funding winter?
Surya: Funding winter or not, incubators, accelerators, and venture capital firms must provide startups with vital support, strategic advice, mentorship, and resources to help them grow. And of course, deploy additional capital if needed and support their fundraising efforts.
At Unitus Ventures, our experience as business operators has been key to supporting our portfolio companies.
Amit: In your experience, what are the key factors that investors are now looking for before making funding decisions?
Surya: We’re back to what investors want to see: founders with a vision and know-how on growing the company while being careful about unit economics. Other key factors include a longer cash runway, product-market fit, and a clear path to profitability. These factors increase the likelihood of securing investment. At Unitus Ventures, we continue to prioritize supporting and partnering with companies that exhibit these attributes.
We recently launched the Unitus Opportunity Fund (of Rs 300 Crore) where we will invest in the best companies from our earlier funds. All these companies have demonstrated product-market fit (PMF) and have seasoned management teams and marquee investors on the cap table. As an ‘early growth’ asset basket, it is a terrific opportunity for Family Offices and HNI’s to participate in private assets where most of the mortality risk has been taken out and there is significant upside for value growth.
Amit: With traditional funding sources undergoing changes, what alternative fundraising methods are becoming more popular among tech startups?
Surya: As traditional VCs tighten their purse strings for equity investments, venture debt has proved to be a viable alternative. Not only does it provide an alternative funding source for startups, but it also helps founders avoid dilution at less-than-optimal valuations.
Besides venture debt, there has been a substantial rise in revenue-based financing (RBF). RBF providers receive a regular share of the revenue until a predetermined amount has been paid. Some of the popular platforms helping startups raise revenue-based financing are GetVantage, BHIVE Investech, Klub, and Velocity, among others.
Amit: What lessons can aspiring entrepreneurs learn from startups that overcame challenges and achieved remarkable growth in this environment?
Surya: Aspiring entrepreneurs should prioritize customer-centricity and stay committed to solving real-world problems to increase their chances of success in any sort of business environment.
Adaptability and resilience are essential traits. Successful startups demonstrate the ability to adapt their strategies quickly in response to changing market conditions. They are resilient, persevere through tough times, and learn from failures. Flexibility and a willingness to pivot when necessary are both critical in navigating uncertain times and finding opportunities for growth.