India is long He had a strong entrepreneurial spirit, and it was common to see people quit their jobs and start their own businesses. A hallmark of that spirit is now evident in the country’s startup ecosystem, which has expanded rapidly over the past few years, if only slightly.
However, the global slowdown has affected the growth of startups in the country just like the rest of the world. In the year After a blockbuster year for venture capital funds in 2021, capital inflows to Indian startups look set to buck global trends in early 2022, but dry up in the second half of 2022.
However, investors are optimistic about domestic prospects and feel that the global slowdown is helping founders focus on building and strengthening their core businesses.
“While this is a tough environment for companies, we see it as an opportunity to pause, take stock and consolidate,” said GV Ravishankar, managing director of Sequoia India.
“Founders are paying more attention to building and strengthening their core business and are making improvements to the allocation of capital and the economic structure of their businesses,” he said.
“It is the nature of the beast to operate under suspicion.” Roopan Aulakh, Managing Director, Pi Ventures
All the investors we spoke with agreed that to make the best of the situation, startups need to prioritize growth if they can maintain an airport.
For Ashutosh Sharma, Head of India Investments at Process Ventures, it’s important for startups to ensure they’re present at this point. “This allows startups to step back and focus on internal processes, business model evolution and organizational issues. [ … ] Once these factors are adjusted, they will lead to organic produce market, which will lead to growth along with economics.
India’s startup landscape has changed dramatically over the past two years, so we spoke to Indian investors to understand more about how they’re approaching investments, the regulations they’re looking for, which sectors they’re currently focusing on, and how they prefer to approach them. A Few Active Investors:
GV Ravishankar, Managing Director, Sequoia India
After a year of hot investments, India has seen a sharp decline in VC funding in 2022, and this year is likely to be the same. How has your investment strategy changed?
After more than 12 years of running for technology, aided by low interest rates in global markets, we have seen a significant slowdown in capital flows since early 2022. This has resulted in a difficult environment in terms of access to capital in India and other emerging markets.
While this is a difficult environment for companies, we see it as an opportunity to pause, take stock and consolidate. Founders are focusing more on building and strengthening their core business and are making improvements to the allocation of capital and the economic shape of their businesses.
So, it is indeed a healthy season and will see high quality businesses exiting this market in the next couple of years.
What advice would you give to your portfolio startups to continue growing at this time?
Focus on good economic growth and don’t “buy” growth because that comes with a weak economy and is unsustainable. Focus on the core business and prioritize pilot investments.
If capital is available, double the original product, because there is an opportunity to attract the right investments from competitors in such a market. The current environment may offer good opportunities to acquire capabilities through M&A at attractive prices if capital is available.
Compared to 2019, what were the most prominent investment trends in India in 2022? Do you expect these trends to continue through 2023? Which sectors do you think will emerge as the next big thing in 2025?
Thanks to greater digital adoption and lower data costs, there has been continuous innovation over the past several years. Post-Covid, we have seen significant growth in e-commerce, edtech and technology-enabled service delivery across all sectors. We have also seen fintech taking over as a major theme and supply chains being digitized, including in manufacturing and agriculture.
Our core sectors are software, consumer, consumer internet, fintech and financial services. These are our continued focus areas and 80% of our efforts. Other upcoming sectors are EVs, climate technology, space technology and opportunities to shift the supply chain to India. Today these are small and new sectors, but tomorrow, they can be big opportunities.
So we’re working with early-stage founders and startups who are building in this space to create innovative solutions to some of the challenges they face in these industries.
About 20 percent of what we do changes every few years due to market trends and technological innovations, but overall, 80 percent has stayed the same for 17 years. Basically, we’re looking to partner with founders who are pursuing big problems in big markets to create big problems in the world. That will always be the case.
What distinguishes the sectors you are currently investing in? How do you assess the potential of a startup in these sectors before investing?
We evaluate startups by their target markets (if it’s big, growing and has profit pools), the team (founder-market fit, why this team) and the business model/mortality (do they have a better mousetrap and why stop their profits?).
What qualities are most important in a founder when evaluating their potential for success? Conversely, what is a major red flag that should cause you to back off?
One of the most important qualities we look for in founders is the tenacity and grit to pursue the problems they set out to solve. From a founder-market fit perspective, we ask what makes a founder or founding team better positioned in the market, and what is their unique perspective on the problem to be solved.
Red flags are related to failed background checks or if the represented business metrics are not diligently vetted.
Ashutosh Sharma, Head of India Investments, Process Ventures
After a year of hot investments, India has seen a sharp decline in VC funding in 2022, and this year is likely to be the same. How has your investment strategy changed?
Given the relative increases and geopolitical uncertainty, over the past year, we have taken a more conservative approach, which is higher for investments. Following that, we shifted our investment focus to smaller ticket sizes, early stages and companies in the SaaS and B2B domains.
