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The Indian startup ecosystem is currently being impacted by the capital crisis period, which we would call Recalibration. After seeing one of the best capital inflows of USD 40 billion in 2021, the industry went through a phase of consolidation in 2022, with investments declining to USD 25 billion.
But it’s important to remember that a comparable or even worse scenario existed at the height of the Covid-19 outbreak, and the resilient business models were uninjured at that time.
“We have discovered and invested in a couple of great businesses in 2021, which have turned out to be outperformers in our portfolio. This has led us to remain optimistic about our ecosystem and view this turbulence as a passing phase,” said Rohini Prakash, CEO, Tomorrow Capital.
Prakash expects to witness a revival in funding and growth sentiments in the next 6-12 months. “In fact, this is an opportune time to identify the right set of founders and support them wholeheartedly. By backing the right combination of a strong business model and founder, one can observe them increasing their market share in a challenging period like this, where others might struggle to stay afloat,” she continued.
Tomorrow Capital’s focus for the year ahead is to back a minimum of two companies, with a particular emphasis on growth-stage companies seeking a Series A round. The key aspects it is looking out for in companies include a large Total Addressable Market (TAM) and a first-mover advantage in their respective space. “Profitability, or a clear path to profitability, is also a core value that we have prioritized at Tomorrow Capital since its inception, and it remains a significant factor in our investment decisions,” Prakash stated.
According to angel investment platform Inflection Point Ventures (IPV), such financial crises are cyclical in nature and give founders the chance to reconsider their strategy, concentrate on important metrics like profitability, and develop more reliable business procedures.
In 2023, IPV plans to invest between INR 100-150 crore in Indian startups operating in a variety of sectors, including edtech, fintech, D2C, cleantech, deeptech, and others. Before investing, IPV evaluates the founders, their teams, business strategy, PMF (product market-fit), TAM (total addressable market), and other factors through a variety of methods.
In contrast, the goal of Venture Catalysts and 9Unicorns is to make about 200 investments in 2023. The VC firm has a focused concentration on four areas, including deeptech, SaaS, ESG in agriculture and EV, and insurance in the fintech industry, even though the majority of its funds are sector-agnostic.
The need for firms to start earning their own revenue and stop depending on outside finance was stressed by Karan Mittal, Partner at Ev2 Ventures. The smart venture mobility fund will keep an eye out for potential competitors across the smart mobility sector.
It is looking to actively invest in around 3-4 companies by the end of this year. These investments would be made from its Fund I of approx INR 45-50 crore and its primary focus will be on ventures seeking investment for their Seed to the Pre-Series A stage of funding.
“We evaluate startups on their ability to innovate, develop novel solutions, and secure intellectual property rights for their innovations. We also attach considerable weightage to the backgrounds of founders as well as the ability of startups to scale the business model, achieve positive unit economics, and adopt a collaboration-focused approach to deliver superior value to target markets,” Mittal highlighted.
As part of its fund’s philosophy, 35 North Ventures looks for entrepreneurs who concentrate on offering value propositions and focus on unit-economics to capture markets rather than just traction. It plans to use its $50 million IDF (India Discovery Fund) to invest in 25 new opportunities over the course of the upcoming year.
“We’re about to introduce a debt fund with an AUM of INR 500 crore. Additionally, Milan Sharma, the Founder of 35 North Ventures, said, “We are also exploring the notion of building up an ESG fund that will focus exclusively on EV space and clean tech.”
At a business conference organised by IvyCap Ventures last year, a group of venture capitalists, private equity investors, and strategic investors said that a financing winter may actually be “healthy” for India’s startup ecosystem. It may also reduce “drunken” over-investing and unreasonable hypervaluation of businesses, lay the foundation for more moral, well-managed, and sustainable organisations, and pave the way for their financial success.
Prashanth Prakash, Founding Partner of Accel, said during the conference that “We need to ensure that the best firms truly win on the quality of their execution and fundamentals rather than being unfairly edged out due to abundant resources in the market. The ecology benefits from the winter.”
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