The rush of capital into Indian startups in recent months has brought increasing scrutiny of fast rising valuations of these companies
Despite a raging pandemic, the Indian startup ecosystem has attracted a rush of capital as the Indian startup ecosystem was able to demonstrate its resilience and has in fact been able to leverage the wave of digitization that covid-19 has resulted in.
“You have seen incredible resilience. The digitization wave that started last year is continuing. Investors recognize that potential. They know this is a temporary setback. If anything, it is a permanent shift in the right direction for technology-led businesses. We can clearly see investor enthusiasm around that," said Karthik Reddy, co-founder of Blume Ventures, an early-stage investor.
According to Ankit Agarwal, partner at Alteria Capital, Indian startups were able to scale up rapidly after the onset of the pandemic because the ecosystem was already in place for digital adoption, thanks to mobile internet penetration.
“India was ready for this fast-paced digital adoption. This has given a very strong push to the innovation ecosystem, and it has pushed technology to the centre of most business models," he said.
Sumer Juneja, partner and head of India, Softbank Investment Advisors, added that Indian startups will continue to scale rapidly with their digital DNA and tech first approach that makes them much better placed to win in the post-pandemic marketplace than the traditional industry.
“There will be a shift from unorganized to organized but there will also be a material market share gain for digital first companies," he said.
According to Lavanya Ashok, partner at Trifecta Capital, the current deal activity in the startup ecosystem highlighted by mega investment rounds is the result of demand and supply matching. “The late-stage companies that have been around for 5-15 years are now compounding at a very different scale. So, what you are seeing is that these companies are getting inbound interest from investors way before they are moving to raise a round. The companies themselves are raising a little bit ahead of what they planned to because they are seeing the investor interest," she said.
Kosturi Ghosh, partner at Trilegal, said that there is a lot of liquidity with investors and the interest is here to stay. “If you are looking at businesses that are focused on consumers and are tech-friendly, I think the money is certainly here to stay," she said.
To be sure, the rush of capital into Indian startups in recent months has also brought increasing scrutiny of fast rising valuations of these companies. However, startup founders feel that one must not get swayed by these numbers as these valuations are a function of supply and demand, with the demand for Indian startup investment opportunities outstripping the supply of quality companies in the marketplace today.
“What you hear on the investment side, to me, is inflationary. Too much demand, too less supply, so the asset gets repriced. It’s a great time if you are series C plus company; a lot of money is chasing you. Therefore, you have to be smart and efficient about raising money and most probably raise more capital than what you need at this point of time," said Ashneer Grover, CEO and co-founder of BharatPe.
“But don’t buy the valuation that you are being given. You still have to work and grow into that valuation irrespective of what that number is," he added.
According to Sujeet Kumar, co-founder of Udaan, eye-popping valuations are not the most definitive benchmark of success for a startup and in fact can come with a lot of threats.
“Valuation is definitely not success. Valuation also comes with a lot of threats. Because tomorrow if that number doesn’t grow as fast as it was when you became a unicorn then internally the employees can get demotivated. True valuation is how big your opportunity is and how much money you need to build those capabilities," he said.
Sumit Gupta, CEO, CoinDCX added, “India is very hot right now. There are limited assets in the country who are leading their space. A lot of capital is chasing founders. It is easier to get capital now than it was before."
According to Yogesh Singh, partner at Trilegal, the deluge of investment dollars is a result of growing interest in Indian startups as well as some amount of fear of missing out among investors. “Investors are really keen, many of our clients say that they see India as the biggest opportunity out there. There is a clear sense of urgency. There is a massive fear of missing out in many situations," he said.