Crisis as an Opportunity : How Startups Can Identity Market Gaps During a Funding Winter

In the ever-evolving Indian start-up ecosystem, 2023 has ushered in a challenging period for securing funding. A funding winter has descended despite investors sitting on substantial dry powder reserves of over $18 billion as of December 2022. 

The inflow of venture capital is lower than expected, making it increasingly challenging for start-ups to raise the essential capital needed for growth. The funding freeze may result in budget cuts and layoffs, effectively slowing down the capability of these innovative ventures to come up with new technological solutions. 

Much of this funding squeeze can be attributed to macroeconomic challenges and geopolitical tensions. The overvaluation of start-ups and their stock market debacles have not aided the situation either. 

However, amidst these challenges, there is a glimmer of hope. In 2023, venture capitalists, corporate venture capitalists, and private equity investors have already announced investments worth more than $3.8 billion to support Indian start-ups at various stages, with approximately 38 per cent of the investment corpus and plans to focus on early-stage start-ups as of August. It indicates that deals are being executed, but valuations are being fiercely contested.

Identifying And Adapting To New Markets 

A funding winter may have its pitfalls for start-ups, but it also presents them with an opportunity to recalibrate their approach. Start-ups can use this period to focus on their fundamentals and explore new market opportunities. 

Success in a challenging environment will require start-ups to be agile in their business plans, emphasising identifying market gaps, leveraging them and beating a path to profitability.

While external funding can undoubtedly help start-ups accelerate their growth, it is a misconception that hefty investment is the sole path to success. The primary focus should be identifying and serving market needs with a robust Product-Market Fit (PMF). 

Take the case of Airbnb, where the founders identified the shortage of affordable short-term living spaces and saw a market opportunity. Today, Airbnb is worth over $85 billion. Sometimes, identifying market needs may also require the start-up to pivot from its focus area, like in the case of the productivity platform Slack, which started as a gaming company in the late 2000s. 

When it failed to succeed in the gaming sector, it pivoted to a new market, focusing on efficient team communication. Start-ups must be willing to pivot based on market needs and prioritise their PMF over merely attracting investors.

Building A Strong And Sustainable Business Model 

Investors have also become more diligent, implementing iron-clad filtering processes to ensure that only the most qualified start-ups with maximum potential make it into their portfolios. While there is undoubtedly a funding slowdown, good companies with strong business models will continue to attract investors throughout the year.


Adopting cash optimisation strategies in business operations is one way to weather a funding winter. Such strategies may include managing working capital more efficiently, with limited research and development spending, and taking advantage of time-proven marketing strategies.

For start-ups, it’s crucial to explore ideas that help them extend their cash runway. It may involve delaying large capital commitments and revisiting debt repayment terms. They should pay attention to revenue generation by closely monitoring key metrics, such as lower customer acquisition costs, higher customer lifetime value and strong customer retention.

Looking Beyond Established Markets

For investors, the funding winter presents an opportunity for more realistic valuations that align with market realities, making it an opportune time to invest in promising start-ups. They are beginning to realise that while many start-ups have successfully reached consumers with significant disposable income, this urban market may not be as broad and deep as it should be. 

For start-ups, it means looking beyond the urban crowd and finding the right pricing and product fit to serve consumer bases across Tier 2 (T2) and Tier 3 (T3) Indian cities. With 39 per cent of the start-ups based in emerging cities, as of 2022, the country’s T2 cities can become the epicentres of innovation and growth, reports Deloitte India. 

It is also an untapped market, which can provide start-ups with many opportunities. Shifting the focus to these markets would require start-ups to have a better understanding of T2/3 consumer behaviour and the difference in tech knowledge. Those who can adapt to the unique needs of these regions may find themselves on the path to success even during the funding winter.

While the funding winter may pose challenges for Indian start-ups, it also offers a unique opportunity for them to adapt, pivot and thrive. By focusing on their fundamentals, identifying market gaps and exploring untapped opportunities, start-ups can weather the storm and emerge stronger in the long run. 

Investors, too, stand to benefit by investing in start-ups with realistic valuations that align with market conditions. The key to success lies in embracing change and innovation, even in the face of adversity.