Amid Funding Challenges in 2023, Startups Pivot Toward Profitability and Exit Strategies

In 2023, startups encountered difficulties securing funding, prompting a significant change in their priorities. A survey by Innoven Capital found that, in response to the funding challenges, 62% of founders shifted their focus from growth to financial responsibility, profitability, and exit strategies. This marked an increase from 55% in 2022 and 17% in 2021.

SaaS and fintech founders, particularly those in the growth and late stages, exhibited a heightened commitment to achieving profitability. The survey showed that nearly two-thirds of these founders were prioritizing profitability. Among the respondents, 30% claimed to have attained EBITDA profitability, a notable rise from 19% in 2022, primarily led by SaaS founders. Most founders anticipated achieving profitability within the next two years.

The survey also highlighted a preference for exit strategies, with tech IPOs being the top choice, followed by mergers and acquisitions. Domestic IPOs gained popularity, with 64% favoring this exit route compared to 30% in 2020, while interest in overseas IPOs declined to 5% from 13% in 2022. Secondary sales also saw increased popularity, rising to 9% in 2023 from 3% in 2022.

Against the backdrop of advancements in Artificial Intelligence (AI) during 2023, 48% of the surveyed founders anticipated some level of disruption to their businesses. Fintech and enterprise SaaS founders identified AI as having the highest impact on their business models.

Despite facing challenges in a weak funding environment and a challenging global macroeconomic landscape in 2023, the startup ecosystem demonstrated a greater appreciation for sustainable business models. Ashish Sharma, managing partner at InnoVen Capital India, observed a positive shift towards realistic valuation expectations and increased focus on unit economics and profitability.