Prashanth Prakash, Partner, Accel. PC: Accel
Prashanth Prakash, an early-stage venture capitalist with Accel, is a veteran when it comes to investing in startups. He began investing in the Indian technology startup landscape in 2004 through Erasmic Venture Fund, which he had set up. He later joined Accel in 2008, where he is now a Partner, with an investment focus on consumer internet services, online marketplaces, and SaaS.
Prakash, who is also Chairman of the Vision Group on Startups for Karnataka, spoke to Moneycontrol, on the sidelines of Bengaluru Tech Summit on November 17, about the IPO frenzy, funding environment and investing in crypto ventures.
Edited excerpts:
Q. We have seen a slew of Internet IPOs this year- from Zomato to Policybazaar to Nykaa to Paytm. What does it mean for the startup ecosystem?
A. It’s really creating the catalytic effect, right? Because India for a decade, saw a lot of incoming investments and it was believed by investors that the ecosystem will mature, correct and exit will happen at some point in time. Finally, that is happening.
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So what this does is elevate the whole ecosystem to the next level of funding. So there are more investors that are now joining the party, and want to be part of it. There are current investors who (will) double down. I think we will see enhanced activity, both for current startups, which will, of course, create more unicorns, and I think also, investors may be more bold and experimental and invest in areas I was talking about like space tech and climate tech.
They will know that this is a 5-10 years kind of investment cycle. Because they have seen India previously deliver, where our companies are now building global entities and are competing globally in enterprise tech, from the first generation of e-commerce, then the next generation of SaaS, and now the current wave of B2B companies like Infra.Market. So there is enough for the investors to participate, they have a very broad portfolio or a broad set of companies across stages. There's more HNI activity and more seed funds, mid-stage funds and there is more private equity and hedge funds that are more late stage. So across the spectrum, you're seeing more capital.
Q. But if you look at most of the companies that were listed recently, apart from a few like Nykaa, there are concerns that they are not profitable yet. There are also overvalued...
What you are seeing in all these companies is that, at this point in time, investors have a certain sentiment. Today, the sentiment is about growth. It is about volumes and the scale of digitisation, and that is what they are valuing. So the potential from the adoption of digitisation by businesses and by end users alike, and the rate of growth is what the market is valuing today. But it will very quickly switch gears, and these companies have to be prepared. So these companies will soon have to demonstrate that more customers, more digital adoptions, these business models becoming more mature means better margins, and a path to profitability and real profitability very soon. So all this I think in the next 12 to 18 months, this will also grow.
Q. What we are also seeing is the free flow of capital into the market, where deals are being done in a matter of minutes and founders now have the edge...
A. I think all these are hype cycles or bubbles on one end; I think they will be normalised. So you will have to just wait 12-18 months and get things rationalised over a period of time. As for valuations, I am not really that worried about, over a period of time. If companies don't deliver to the potential of the valuation, it gets reset. So it is just a buyer's perception of what the equity value they see, and the demand in the market for that. So it gets normalised.
Q. Is this a concern for Accel too?
A. We have been through these before. We have been through the 2008 cycle, then the e-commerce cycle, and now there is a new cycle. This time around, I think it is, unlike any of those (previous cycles), it is bigger and larger. So I think there is a concern at some level that this should not lead to a lot of distortion in the market. But things will settle down. And I think things will normalise.
A. Let's talk about the war for talent. How is it impacting early-stage startups’ ability to hire talent? Is it affecting your portfolio companies as well?
A. We have a lot of early-stage companies, correct. I think the potential for creating wealth will always still come from an early stage. So the best talents, no matter how many large companies try to hire, the aggressive, more adventurous, and the more bullish entrepreneurs and talent will gravitate towards the early stage. Because that is where the upside is, so I'm not worried about it. And also there will be a lot of talent consolidation like acqui-hiring that will happen at different stages.
I think there was a time when 80 percent of our best talent went abroad. Now, it is like 50 percent of the talent is probably coming to Indian startups to switch because of the demand and opportunity here. We will see more of that in time to come. I think there's enough talent in this country to feed our startups at least for the next decade.
Q. Metaverse, crypto and Web3 are the buzzwords right now, and this particular sector is seeing huge investments. Is Accel looking to invest actively here?
A. When we did (invest in) e-commerce and SaaS, nobody was looking (at this space). We also have companies in crypto globally. So I think we will look at every new technology and be kind of experimental. We will have to experiment, and basically it is about finding the next entrepreneur who I think will create these companies.
Q. Are there any particular companies you are looking at in India in the crypto space?
A. We have FalconX, one of the largest companies, that is scaling well and is based out of the US. When it comes to India, there are some regulatory challenges. So we will look at slightly more global opportunities.
