India focused funds are sitting on large amount of unallocated dry powder, says report
Venture funding for startups suffered a 40% drop in 2022, and only 18 out of 100 start-ups are profitable in India, as per 2021-22 estimates, according to a report ‘Road to Hyperscaling in India’.
The report was released on 23 Mar 2023 in New Delhi by Boston Consulting Group (BCG) in association with Times Bridge and the Delhi Chapter of The Indus Entrepreneurs (TiE Delhi-NCR).
Silicon Valley Bank failure and associated events have further added to the volatility and uncertainty in the near term. The tendency to ‘scale fast’ by burning cash always backfires, if done without clear sight of long-term customer value and unit economics. Survival and extension of financial runway must be the top priority for startups in these times.
Many Indian start-ups have attempted but struggled to scale up businesses successfully in other major international markets.
The report also shared inspirations from global leading startups, such as Uber and Airbnb, which managed to successfully adapt their business models to suit the specific local needs of Indian customers.
While driving localization, they focused on not just leveraging existing strong global tech platform, but also exported successful local innovationsfor India back into the global platforms and playbooks.
There is, however, a silver lining. Many India focused funds are sitting on large amount of unallocated dry powder to be deployed at an opportune moment.
The younger promising start-ups will continue to attract capital, and so would the well-run late-stage start-ups.
Founders may have to be more flexible on valuation in the near term though, as well as be open to alternative sources of funds, such as venture debt.
As a leading venture capitalist expressed, “This is the best time to build your business if you have sorted out your basics. The worst thing you can do is to want to keep to your old valuation because of ego and lose your market share.”
Sidharth Madaan, a Partner at BCG, opined, “Time and again, we have seen the well-run start-ups emerge significantly stronger with reduced competition out of a crisis.
“In the current volatile environment as well, start-ups with stronger business models, unit economics, customer retention, and sharper growth focus will just not be able to stay afloat, but also consolidate their lead and emerge as leaders on the other side of the crisis.”
“How ephemeral can time be. When we started our interviews and research for this report late last year, funds were aplenty, valuations were skyrocketing, and growth was the only objective in one’s mind,” says Rajiv Gupta, MD, Senior Partner and Leads Technology, Media and Telecom for BCG India.
“And within a few months, while growth is still the holy grail, other parameters like strong business models, customer retention and above all, unit economics, have assumed centre stage.
“Those start-ups that will be able to juggle all of these without dropping any balls through this period of crisis are the ones that will come out stronger and as leaders from the current volatile environment,” said Gupta.
Rohan Joseph, VP, Head of Global Investments and Corporate at Times Bridge, said, “India’s entrepreneurship and technology landscape has seen enormous growth in recent years, making it the world’s third-largest startup ecosystem.
“This report showcases the innovative strategies deployed by leading startups and global companies as they scale up in India’s dynamic business climate.
“At Times Bridge, we enable purpose-driven companies to enter India, and this report reaffirms our conviction in the market’s potential for entrepreneurs across all sectors,” said Joseph.
“The Indian Startups story has entered a new era with a focus on creating scalable yet sustainable startups with the clear path on profitability. Hyperscaling is integral to this journey.”
“For over 2 decades at TiE Delhi-NCR we have witnessed the rise and rise of the startup ecosystem in India and have played a key role in its development,” said Alok Mittal, Co-Founder & CEO, Indifi Tech and Board Member TiE Delhi – NCR.
“The report shows our commitment to fostering the spirit of entrepreneurship for the new economy,” he said.
The founders and leaders need to ensure survival as well as keep one eye on the future. While managing burn will be critical on one end, one must capture opportunities smartly to invest and grow in the long term, said the report. fiinews.com
