The much-talked-about funding winter derailed the “great Indian startup party” in 2022. But, WestBridge Capital’s co-founder and managing director Sandeep Singhal is confident that there will be another party soon, as investors will be back to invest in high-growth companies.
“The next year probably will be the year of fasting when you drink a bit of Nimbu Paani. I think there’s going to be a period when all of us look at what’s happened in the last three-four years, but there’s no doubt that what’s happened over the last three-four years, companies will look at building a stronger, more capital efficient and more thoughtful operations where the customer is smarter, the investors are smarter,” said Singhal in a fireside chat with GSV Ventures’ Deborah Quazzo at the GSV Emeritus Summit.
“Next year will be better overall. It’s just that everyone has to reflect on what has happened in the last few years and take lessons from that. I believe there’s going to be a good party soon,” Singhal added.
His comments come as the world’s third-largest startup ecosystem has seen little fund flow in 2023.
As reported by Moneycontrol, in January, the funding was at a five-year low. Tiger Global, a prolific technology investor which has been extremely bullish on Indian startups, did not do a single deal in January in yet another indication of investors turning averse.
Layoffs, market cap erosion
Not just funding, startups have also witnessed a slowdown in demand and have laid off thousands of employees to navigate the funding downturn.
In 2023, more than 2,500 employees have been fired, taking the number of layoffs to about 20,000 since the start of 2022.
Not just private startups, publicly listed firms, too, have seen their market capitalisation fall sharply in recent months, with shareholders questioning their path to profitability.
IPO is not the answer
Unicorns like Oyo, Byju’s and Ola among others have delayed their initial public offering plans.
Companies should only look to go public when they have a predictable business and strong profits to show, Singhal said.
One thing going around in the ecosystem is that IPO or going public is the solution to the pains of the business, he said.
“I have had a lot of friends who had not found the right business model, their unit economics weren’t right but were telling me that they will go public next year. I didn’t say anything but I know for a fact that they will double the trouble by doing that (going public),” said Singhal.
Entrepreneurs must be patient and get to a point where the business is more predictable, where the economic model is found and there is actually reasonable profit to show.
“So all the edtech companies must wait to get to a place where they have a healthy, predictable business model and profit and then go public,” he added.