I’ve always believed that bad press about founders is a sign of a larger economic struggle by the company.
When things are going well, the incentives for everyone are aligned. This would involve even turning a blind eye to challenges or grey areas. As long as everything is going up, founders, investors, employees are all incentivized to behave in the same way.
Once things stop going up, incentives are misaligned. Everyone involved is looking for someone to blame. The one with the largest target painted on the back is usually the founder.
Therefore, bad press is a sign of alignment of incentives and everything else going out of the window.
The Indian startup ecosystem may seem massive for its participants. $45Bn of capital inside the ecosystem. It seems hard to be influenced by the vagaries of the world.
After all, Bangalore is Bangalore.
But if you look at the large picture, India is a drop in the ocean. It just makes up 10% of overall venture funding globally, which topped $600Bn last year. Venture funding is a pygmy in the world of equities, which is worth $91Tn as things stand. If the global equities market was a hammer, Indian VC funding is probably the head of a nail.
I’ve believed since November last year that we were going to see a startup winter very soon.
I think we are already in it.
I joke that the growth of “hyperlocal” startups is a sign of a peak. 2015/16 had more “hyperlocal” startups than people who used them. Everyone thinks groceries are the best thing since sliced bread. Of the 100s started then, just 2 probably remain – Zomato and Swiggy. I think we saw our peak in November/December last year.
Another pattern that I observed in the last peak was the public fights between founders and investors. Startups would start laying off employees in hundreds. Companies would shut overnight. Apparently “impregnable” unicorns would be hit.
I’m seeing all of it happening again. In this case, history is repeating itself, the actors are different.
As an investor, I am already observing a reduction in the velocity of deployment. This is happening at the later stages more than the earlier stages. Late-stage investors tend to have their core business in public markets. Public markets are in complete chaos with present volatility related to war and spiking inflation.
Free money taps turning off are hitting public markets first, which respond first, and then trickle down to private markets. Late-stage investors are therefore the first to move. It is inevitable that all stages of investors are going to be hit eventually.
Early-stage investors like me are caught in a strange bind. Our firms have raised capital for new funds in bull market, and have capital to deploy. The sign in all investing stages is that you need to tread with caution.
But because we have “dry powder”, we need to deploy. These two opposing forces are still seeing a healthy seed market.
I think it’s going to slow down soon too.
Some of the worst VC investments happened at the peak of the last startup bull run in 2015. Some of the best VC investments happened at the trough of the startup winter in 2016. Many of India’s biggest unicorns today were, ironically, born in that winter.
Winter is good because it dissuades tourist investors from investing, and flaky founders from starting up. Only the toughest and most committed step in. This is a good thing.
The coming of bad news, both about culture and absurd sounding claims of fraud, only strengthens my belief that the going is getting tough. I expect the next few years to be hard, with the coming end of this year probably going to be the hardest. There will be layoffs, founders will struggle to raise and there is going to be a lot of pulling back.
In this situation, if you are a founder, you must conserve cash. The goal may have shifted from growth to survival. You must behave like a war-time CEO (it literally is war), not a peace-time CEO. Over-communicate with your teams, especially if you see your sector or competitors in cross-hairs
The market is bigger than all of us. Fighting the market is a losing battle from day 1. Accepting it for what is happening is the best course of action.
I believe the Indian startup winter is here. Ignore it at your own peril.