Downsize teams, raise funding without over-negotiating on valuations: InfoEdge Ventures to portfolio cos

Info Edge founder Sanjeev Bikhchandani

Just when early-stage funding was witnessing signs of revival after months of a funding winter, InfoEdge Ventures, an early-stage investment firm backed by Sanjeev Bikhchandani's Info Edge and Singapore's Temasek has suggested its portfolio founders to cut costs, downsize teams and raise funding without over-negotiating on valuations.

In an internal survey shared by InfoEdge Ventures with its portfolio founders, the VC advised founders to increase runway by cutting expenses, focusing on revenue growth, downsizing team sizes and by raising funding.

"The key goal is to survive. It might get worse before it gets better," the VC told portfolio founders in the survey, a copy of which was accessed by Moneycontrol.

"If you need the money and are getting it, take it without over-negotiating the valuation," the VC added.

InfoEdge Ventures also suggested its portfolio founders to focus on their core businesses and asked them to improve their product market fit. "Stop doing non-essential stuff," the VC said.

"Cashflow is more important than EBITDA (earnings before interest, tax, depreciation and amortisation) which is more important than CM1 (contribution margin), CM2, CM3. Collections are more important than billing and revenue," InfoEdge Ventures said.

"If you have plenty of money, this is the time to put pressure on the competition," the VC added.

The contribution margin shows how much additional revenue the company generates by making every additional unit after achieving breakeven. In other words, it's the difference between revenue and variable costs divided by revenue.

InfoEdge Ventures' warning to portfolio companies comes amid a prolonged funding winter for India's startup ecosystem, which is currently the third-largest in the world. However, early-stage investments are witnessing a faster revival. Earlier in the day, Moneycontrol reported how early-stage funding remained upbeat in the third quarter of 2022, citing a report by PwC.

“While a decline in funding is noted across all stages of investment – early, growth, and late – it has been the least in early-stage deals which accounted for around 21 percent of the total funding value in the third quarter compared to approximately 12 percent in the previous period," a report by PwC India said.

Even in the second quarter of 2022, early-stage funding had risen 30 percent to $1.50 billion from $1.17 billion a year earlier, Moneycontrol had reported.

In May-June, VC firms including some of the world's largest such as Sequoia Capital, Y Combinator, Beenext, and Orios Venture Partners, were suggesting their portfolio companies to cut costs and extend the runways, anticipating a prolonged funding winter.