Startup Founders Shift Focus to Profitability and Exit Routes Amid Funding Challenges in 2023

In the face of dwindling funding, startup founders in 2023 are steering toward fiscal prudence, profitability, and exploring viable exit strategies. According to a survey by venture debt firm InnoVen Capital, 62% of founders have pivoted towards profitability over rapid growth. This marks an increase from 55% in 2022 and a significant leap from 17% in 2021, revealing a growing preference for fiscal sustainability.

The survey highlights that SaaS (Software as a Service) and fintech founders show the highest commitment to profitability. Interestingly, nearly two-thirds of growth and late-stage founders are also prioritizing profitability over sheer expansion.

Notably, 30% of the 100 surveyed founders claim to be already EBITDA profitable, with SaaS founders leading this trend. A majority expect to achieve profitability within the next two years.

As tech IPOs gained momentum in the last two years, exiting through an IPO remains the top choice for startups, followed by mergers, acquisitions, or strategic exits. Domestic IPOs gained prominence, with 64% favoring this exit route compared to 30% in 2020. However, interest in overseas IPOs dipped to 5% in 2023 from 13% in 2022, while the preference for exit through secondary sales rose to 9% from 3% in 2022.

In the realm of Artificial Intelligence (AI) developments in 2023, 48% of respondents foresee some level of disruption to their businesses. Fintech and enterprise SaaS founders predict the highest impact on their business models.

Ashish Sharma, managing partner at InnoVen Capital India, reflects on the challenging year, noting a higher appreciation for sustainable business models, increased focus on unit economics and profitability, and realistic valuation expectations within the startup ecosystem.