I am tempted to start with the proverb, “may you live in interesting times”. That would surely apply to 2022. As the world came out of Covid, the gravy train of liquidity that was chugging along for a few years finally left the station, leaving behind a trail of institutions, capital providers, central bankers and people at large, scrambling around to cope with unprecedented inflation in countries that had come to believe that inflation, like malaria, did not really happen to them!

Well, the short supply of capital and resurrecting demand played out in parallel with a war in Europe that quickly settled into becoming a long-term guest, just like Covid restrictions in China, air pollution in Delhi, or high energy prices everywhere.

What does this new geo-political and macroeconomic reality mean for the vibrant start-up ecosystem of India – a country with extraordinary talent, ambition and opportunity? How do these events of 2022 augur for founders and start-ups in 2023? Predictions for 2022 included continued ‘funding rush’, greater confidence and capital. And why not? We were going through an unprecedented funding cycle, popping out unicorns, sometimes as fast as in 6 months. It takes more time to get a tourist visa for most countries!

2022 recap

What actually happened in 2022 was that number of unicorns fell by 50 per cent, start-up funding fell by over 35 per cent year on year. Adjust for spillover of deals from Q4 and numbers would look worse. Investments in the retail and fintech sectors fell 57 per cent and 41 per cent respectively. The term ‘funding winter’ became a part of the vocabulary. Media reports of fundraises jostled with those of downsizing and downward valuation revisions in public and private markets.

As we enter 2023, there are fresh rumours of Covid. And there are no visible signs of the funding winter receding. We will be at least two quarters down in 2023 before macroeconomists start to change or firm up predictions.

So, what is the start-up ecosystem busy doing now? Conserving cash, largely. If they are already in business, they are looking at margins, costs, profitability, adding capital. If they are bootstrapped, they are re-looking at business models and pitches. Start-ups that already have a business model are exploring options to monetise. Investors are looking for the right companies to invest in, especially if they are at the right stage and at the right price. Is any of this such a bad thing? Not really, except that when it comes on the heels of a super charged environment where valuation, scale and funding were the metric to be chased, this is a hard landing. And hard landing takes a different type of leadership. So, what should these leaders be watching out for in 2023? I would say the following:

Country premium. Keep looking at the geo-political situation and how India fares. There is enough positive messaging from the government, especially with G20 leadership. But the headwinds coming from currency depreciation and global economic shifts are real and complex.

Partnership games. As it happens, talent and capital are never distributed evenly. Large corporations and investors anticipate how technology shifts will affect future businesses, behaviour, productivity. They also have the dry powder. So, they will be on the lookout for partners or targets. Ability to swing business partnerships will change for founders, who lose some of the earlier advantage.

Hand of God. Yes, there is the Covid factor. But also, regulators. In the fintech space, for example, there are legitimate questions about business models and monetisation, given regulations on credit partnerships, MDRs.

Early-stage advantage. The earlier you are, the higher your ability to take time and create a sustainable business with low pressure.

Future of finance is female. More start-ups with female founders turned unicorns in 2022 than before. Yet, the numbers are abysmal. Since starting up with SALT, I have met hundreds of amazing women founders. In a less testosterone driven environment, they will hopefully find the right attention.

Moonlighting and culture. With so much bad news around, employees can be expected to focus on their bread-and-butter jobs. But talent retention and culture are never optional activities. Not even now. Across the world, companies are evaluating remote work to save energy and infrastructure costs. Maybe that is something to consider.

Enter the Indian VC. Better understanding of local ecosystem. Ability to negotiate. More emphasis on value and path to profitability. We will see more deals at the right value by Indian VCs.

Unicorns were meant to be rare. They will be rare. This country has real problems to solve. Focus on the client and the profit pools.

Smaller deal size. Fewer mega deals.

Newer sectors – agritech, spacetech, environment tech, Web 3.0, AI. We are solving for billion-plus people and incredible diversity.

An American VC friend told me earlier in the year that he was amazed at how unrealistically positive Indian founders tended to be. It’s almost like nothing will actually go wrong. Since this year end has been so annoying with ChatGPT poems, let me end with a real poet’s prophetic lines, “If winter comes, can spring be far behind?”

Shinjini Kumar is Co-Founder of SALT, a fintech app