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Moneycontrol Masterclass | No funding winter for startups but only 'kaalchakra' which founders will have to go through

Investors' comments come at a time when venture capital and private equity funding to Indian startups is drying up amid a slowdown in global financial markets which has also hit valuations of many high-growth technology companies across the globe.

June 03, 2022 / 11:00 AM IST

The much talked about funding winter for Indian startups is just a kaalchakra (time cycle) that may not last for more than nine months, with things improving soon, said investors and founders in the latest episode of Moneycontrol Masterclass.

Speaking to Moneycontrol’s Chandra R Srikanth in the Masterclass episode, Anand Lunia of venture capital firm India Quotient said that founders of new-age technology startups have to live through this phase and the ones who keep producing and selling something everyday will not face any problems, even during tough times.

“Indian economy will do very well, I don't expect revenue downfall in Indian companies at all. That's a big positive,” said Lunia.

“India will not face negative revenue growth, negative valuation is irrelevant,” he added.

Lunia’s comments come at a time when venture capital and private equity funding to Indian startups is drying up amid a slowdown in global financial markets. The slowdown has also hit valuations of many high-growth technology companies across the globe. Many startups are finding it difficult to raise funds, especially at later stages.

“If you are a company that was planning to raise your next round in 6-8 months then you're in trouble. If you have already raised you are safe,” said K Ganesh, promoter, BigBasket and Protea Medical.

“I don't think this will last longer than nine months. I wouldn't call it winter, I would call it slightly chilly weather,” he added.

Startups have also resorted to cost-cutting initiatives including mass layoffs, reducing marketing spends, and shutting non-core verticals among others to prepare a runway for the near to medium term.

“This is the time to focus and build your business because there is very little hype going around. Obviously subject to the caveat if you have at least 12 months runway,” said Ganesh.

Corroborating the comments, Sanjeev Bhikhchandani, founder of one of India’s oldest internet companies, which has invested in new-age startups like Zomato and Policybazaar, said that he is advising founders to reduce cash burn and focus on building stronger unit economics.

“Companies where growth is lagging, burn is high and unit economics is not great, they have to accelerate the breakeven deadline. It may not be easy for some,” said Bhikhchandani.

“We are not advising anyone to shutdown. We are advising people to conserve cash and somehow get to unit economics and raise money,” Bhikhchandani added.

Incidentally, two of Info Edge's investee companies, recently laid off over 200 employees. While Udayy, an edtech firm shut down its operations and laid off over 100 employees, Yojak, a business-to-business (B2B) marketplace, scaled down its India operations, laying off over 140 employees.

However, Bhikhchandani is not the only investor to advise startups to cut burn and focus on stronger unit economics and profitability. Many venture capital firms, including some of the biggest globally, have recently sent out letters to their portfolio founders asking them to reduce extra burn and to build a runway for 18 to 24 months.

“There are a lot of memos which make you sit up and think. And India’s startups are not as mature as the US. Lot of us have grown in the last 3-4 years so people are seeing out to understand, how to respond,” said Ashwini Mohan, founder and chief executive officer, Mad Street Den, an artificial intelligence startup.

“Its a great time for India to get competitive. There is a great competitive edge for Indian companies if we build it righ in the next 12-24 months,” Mohan added.

Venture capital firms including Sequoia Capital, Orios Venture Partners, Y Combinator, and Beenext, have also advised startups over the last three weeks to take money whenever available even at down or flat rounds.

“Don't get emotionally attached to a valuation number. Raise capital at the best possible terms and move on,” said VT Bharadwaj, partner at venture capital firm A91 Partners.

"There's a lot of fog in the air. It will take six to nine months for the dust to settle down and the funding environment to become clearer. Founders should focus on things like unit economics. Let's not try to predict how long the slowdown will last,” Bharadwaj added.

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Nikhil Patwardhan