How Can Startups Keep Pace with Changing Dynamics of the Startup Ecosystem

The startup ecosystem journey is as evolutionary as the startups themselves. Especially when it comes to the funding thesis of investors. The recent tepid public listing of startups on the stock market, the geo-politico-economic dynamics of the Russia-Ukraine War and post Covid Partum have caused a paradigm shift in how investors look at startups for investments. The focus is now on startup business models.

Secondary markets are extremely bottom-line focussed. So it is but natural for valuations to meander down to book value and PE multiples when startups get listed on the stock markets. Some of them are down 60 per cent from peak valuations with no signs of recovery in the near future.

Startups Valuing Quality Over Quantity

A startup does not look at profitability in the initial or mid-stage. Its focus is on creating a great product that disrupts the market. Attaining net profitability or getting unit economics right is secondary. So when investors realised the end state is bottom-line centric, they returned to the drawing board. The funding in the Indian startup ecosystem declined by 80 per cent in Q3 2022 to USD 3 billion compared to USD 14.9 billion in the same period in 20211. They invest only if the underlying business model has a clear road to profitability. The startup entrepreneur ecosystem is now adapting to this changing business reality.

Startups must be more focused on getting their fundamentals right and building strong business models with clear paths to profitability. The consultants, mentors and angel investors too have now shifted their focus to these metrics.

Startups Should Focus on the Fundamentals

Startups tend to believe if they gain enough market share they can drive consumer behaviour change and will be able to turn profitable over time by raising product prices. They work on emerging technology solutions and believe a consumer will pay for these products, no matter what.

For example, most of us don’t mind paying a little extra for food to be delivered to our homes. The food aggregator startups used the investor money to drive a behavioural change in the consumer, creating an entire ecosystem of cloud kitchens, restaurants and delivery executives. However, not every startup succeeds with its products, or in driving consumer behaviour changes. Therefore, it cannot raise the prices of products to turn profitable.

With the changing business environment, startups must focus more on unit economics. These organisations must analyse the cost of creating a product, distribution costs and saleability. There needs to be a sharp focus on business models to get profit margins right from the ideation stage. There is now a conscious effort to figure out how much the consumer or client is willing to pay for a startup’s products.

Gaining Investor Trust a Must for Startups

Startups today are employing multiple ways of validating business models to gain investor trust. Organisations are conducting research to offer proof of how much products will cost, with detailed raw material costs from vendors and manufacturers. In addition, these organisations are also using market data to showcase how consumers react to product pricing and specifications. Investors are more willing to invest in startups that have done their homework.

Investors are no longer willing to throw money at emerging technologies claiming to have huge market disruption potential. They reach out to incubators, research institutions and universities to better understand the technology and its potential use cases and limitations. They are validating startups’ claims to determine if they can deliver innovative solutions while aligning with new business metrics.

Investors have also turned cautious even with moon-shot investing where the investment is made on something experimental with a low probability of success. The investments are being made in phases. They are revisiting their decision after six months.

Redefining Startup Success

At T-Hub, startups are rethinking their definition of success.

Can merely raising a round of funding or the ability to generate revenue be the right metric for success?

Or is building a sustainable, profitable business a success?

T-Hub plays a crucial role in helping startups add value to themselves and build sustainable businesses. We help them to evaluate the gaps in their analysis, understand their requirements at various stages of growth and connect with the right client to forge collaborative partnerships.

T-hub’s startup programs include startups’ product, business, funding and growth readiness. The acceptance rate to these programs is approximately four per cent, which means for a cohort size of about 20, we get around 500 applications. Those who qualify go through a rigorous program with access to a great pool of mentors. We give the startups market access, which enables them to take their product to corporates and get their Proof of Concept (PoC) validated with feedback. We help them build their business model and we measure their progress. During the duration of a cohort, we see about a 4X growth in the revenue, a 7X rise in the sales pipeline and a 135 per cent surge in hiring.

At T-Hub, we make startups investment ready, help them work on their cash-flow statement and get the right pitch deck for the narrative the startup is trying to create. We also help with branding. All this is done through a series of workshops. The several investor desks in our facility allow young entrepreneurs to interact with them, gain insights, and understand an investor’s perspective. They can simply walk across the corridor to plug holes in their business plans or build a better pitch deck.

We understand that startups have different requirements for services at every stage of their journey. The support could be in the form of legal, technology, regulatory compliance, banking or insurance support. We have around 40 categories of value partners to collaborate with startups. Thus, the moment a startup aligns with T-Hub, they get an onboarding gift hamper package, which provides multiple offers like a USD 10,000 Amazon Web Services (AWS) credit, a USD 3,000 GCP credit, a USD 4000 HubSpot credit and an average of 30 per cent discount on all other services.

We are enabling startups to adapt to changing business environments and become sustainable businesses. T-Hub has evolved as a single point of contact for all startup needs. It’s well on its way to becoming the gold standard for enabling innovation and entrepreneurship.