Startup Street: What's Next After The 'Perfect Storm'
Near-zero rates, the speed at which decisions were taken during the pandemic and frothy valuations created the 'perfect storm'.
Near-zero rates globally, the speed at which decisions were taken during the pandemic and frothy valuations created the "perfect storm" that dried up funding, triggering a wave of layoffs at Indian startups.
That's according to Posist Technologies Pvt.'s Ashish Tulsian; veteran investor Dr Ritesh Malik; and Murugappa Group's Arun Venkatachalam. The trio spoke to BQ Prime's Manvi Sinha Dhillon on the lessons to be learnt.
Venkatachalam, who is also an angel investor, described the funding buzz in 2020-2021 as a "perfect storm".
"Near-zero interest rate, dollar-denominated funds, that money found itself all over the world," Venkatachalam, also an angel investor, said. "Capital became a weapon. Lot of capital got deployed as a way to ward off other companies in a sector, so there's only one winner."
"Low interest rates pushed higher risk into the system and now we're seeing, as rates go higher, there's a flight of capital away from business," he said.
Tulsian, founder and chief executive officer of Posist Technologies, said shifting to Zoom during the pandemic and eliminating travel brought in "so much velocity to decision-making and business".
"We also saw a radical dip in that velocity as soon as the world opened up. Business velocity has decreased, decision-making is slower, businesses are now going back to their normal, physical day, so that decrease is also real, apart from any macroeconomic forces," he said.
Malik, an angel investor, founder of Innov8 that was acquired by Oyo and who also runs the startup accelerator Project Guerrilla, said investors are now "incentivising the founders for a better future, where profits and earnings will create more value".
"Founders shouldn't be running after valuations. Valuation is a very vanity metric," he said. "Core focus should be adding value at scale and ensuring corporate governance is adhered to."
Venkatachalam said he had taken a step back from early-stage investing as "things got out of hand" but that has made him "even more bullish" on investing in the next 12-18 months.
"...The best companies get founded in a downside. There's a lot of uncertainty in the market today. So only the ones who are sure of what they want to build, how they want to build and who is going to join them early on, will actually start," he said.
"The pool of who want to start up will be smaller, but the quality will be higher. So from an angel investor's perspective, it's a very interesting time going forward," he said.