Startups' Addressable Market Estimates Were Based On Fallacy: PwC's Amarjeet Makhija

Some of the assumptions that were being made were sometimes without any analysis, he told BQ Prime.

<div class="paragraphs"><p>PwC India's Amarjeet Singh Makhija. (Source: Company site)</p></div>
PwC India's Amarjeet Singh Makhija. (Source: Company site)

Multiple funding rounds at incremental value, easy access to capital, and inflated addressable market estimates are a thing of the past.

What's new? Lengthier, probing conversations between investors and founders, and measured growth over blitzscaling, according to PwC India's Amarjeet Singh Makhija.

The fundamental difference between the ecosystem today and a couple of years ago is the way capital is being disbursed, Makhija, the partner and leader of startups and unicorns at PwC India, told BQ Prime in an interview.

"Founders that have a real pedigree, are high on technology, and are solving real problems still continue to get the right kind of money. There was a frenzy during 2021–22, when everybody was trying to put in money at whatever valuation. Then, it was a seller's market. Today, it is a buyer's market," he said.

VCs today are "flush with money" but the trend of multiple rounds of funding happening at incremental value every time is a "thing of the past", according to Makhija. "Everybody is being told that you have to spend the money in the right manner... Fresh capital coming in has become a little more calculated."

Investors are not looking purely at growth numbers anymore, either. "What they're looking at is the quality of growth now. The expression that growth is always good is not true today. The investor is looking at how the founder gets the right kind of return on investment for every penny... A lot of expenses are being challenged as well. Investors are also finding that founders spend more time doing rounds of funding than concentrating on business," Makhija said.

The issue of the path to profitability is something that was very low on the overall agenda earlier, he said. "It was also lower on the agenda of the founder and investor, unfortunately. But suddenly, people saw some of the listings that happened and how the Indian stock market actually challenged the company and the founder in terms of some of the losses they reported. That made it clear for investors and founders to start looking at profitability from day one."

Further, the concept of a total addressable market was actually started by startups, Makhija said. "Those were very fancy terms based on which business plans were created... Saying that the penetration of the internet is increasing and taking that into proportion to say the market size has increased, I think that was a fallacy. Because every product is not procured by every strata of the customer," he said.

Some of the assumptions that were being made were sometimes without any analysis. Because the availability of data in India was always a question mark, Therefore, the way the addressable market was looked at was based on assumptions rather than actual data, according to the top executive.

"The current crop of startups is much more knowledgeable in terms of their market estimates, versus what I used to hear four years ago," Makhija said.

Watch The Whole Interview Here: