startup awards: ET Startup Awards 2023 | Indian startups go back to the basics in a changed world

After having felt reverberations of global turbulence in macroeconomics and a funding winter, Indian startups have undergone a great reset and are back to chasing basic business fundamentals of unit economics and sustainable revenues and profits.

In the past one year, several companies in the new-economy ecosystem have witnessed a correction in valuation multiples, after a low-interest rate regime in 2020 and 2021 led to a surge in investments — both private and public. This became clear with the amount infused by risk capital investors plummeting through the last 12 months.

The quarter-ended September was the weakest in terms of funding in five years, further signalling the persistence of the ongoing funding winter.

At the ET Startup Awards event, a panel composed of top names from India’s startup brigade discussed the new order and how they were laying the foundation to sustainable revenue and profitability. The panel also touched upon how the focus for India’s new-economy companies continues to be public markets and the low interest era resulted in a distraction than an enabler to that.

On the panel were: Lalit Keshre, cofounder and CEO of Groww; Prashanth Prakash, partner at Accel; Harshil Mathur, cofounder and CEO of Razorpay; Aadit Palicha, cofounder and CEO at Zepto; and Rashi Narang, founder of Heads up for Tails (HUFT). The discussion was moderated by ET’s Samidha Sharma.

Edited excerpts:

From left: Samidha Sharma, editor, ETtech; Prashanth Prakash, partner, Accel; Harshil Mathur, cofounder and CEO, Razorpay; Rashi Narang, founder, Heads up for Tails; Lalit Keshre, cofounder and CEO, Groww.

ET: Tell us a little about how you look at this new changed world as an operator yourself?

Mathur: I think when we started our company eight years back, the purpose of business was always to make money and get to profitability. That’s one of the reasons why we stuck very close to our core segment, which was B2B. I think what happened somewhere in two-three years in between was a distraction. I think we are back to basics, which is, talking all about how a business makes money. As you get to the later stages of the company, you have to start showing revenues out.

ET: When do you start prizing revenue over other metrics and turn towards profitability?

Keshre: In consumer business, one strategy that a lot of internet companies use is delayed monetisation. But there are some basic things before you do that. One is that your business eventually has to be sustainable which means customer retention needs to be very high. We balance but growth is, of course, always more important in a startup.

ET: We see these (funding) cycles come and then everyone forgets the basics of doing business. What came along with the venture money which you raised after being bootstrapped for so long?

Narang: Venture capital did allow us to experiment with a lot of new formats and products. It allowed us to grow much faster and gave validation when it came to hiring. But in the last two years, the only conversation and reward from the market was growth at all cost and top line. We went a little bit along that line. But we realised very quickly that it did not feel right. Our only focus now is how we become profitable and come back from some missteps that we may have taken.

ET: What is it that VCs have done in terms of the reset in the past couple of years?

Prakash: We’re a young ecosystem and not had enough of an experience of these cycles. The first mistake is that we overbuilt a lot of tech and spent 3-4x the amount we should have spent on technology. We also saw misalignment in the whole valuation ladder that builds up (or markups companies receive). We lost sight of what it is to practically build a company for the public market. Nobody put that right and centre, so that’s a shift. The third mistake was that we buried the importance of somebody being an operator. I think it was about storytelling and pitching well.

ET: How much predictability around policymaking and regulation determines sustainability for businesses?

Mathur: When you start in a fintech domain like us, regulation is as important as the market is for any company. Most of it is driven by external factors and you have to build around it. I think regulation will be part of the journey and we expect it to change further in the next couple of years. As long as the approach (of making regulations) is in a consulted way, like it has been, it’s not very hard to mould the business around it.

ET: Do you think early-stage startups find evolving regulations as a roadblock, considering there are costs involved?

Prakash: In fintech, I would say there has been a lot more learning. So, it’s probably now a bit easier for them (fintechs) to navigate and the cost is not that much. Even in gaming I think it was clear and this has also happened in ecommerce (in the past) when we started out. It’s part of building new sectors.

ET: We have always looked at outsized valuations. Why is it that a $500 million exit in the public market is not prized as much as a decacorn or a $15 billion public market debut?

Prakash: Companies compound after IPO and IPO should not be the end event of when you think a company’s value is determined. The first round was about maximising value pre-IPO, I think that’s not a sustainable aligned way.

ET: Would you be comfortable taking a down round?

Palicha: What really matters is what your valuation is after a decade. For us, when we went to raise this capital, we didn’t really have a valuation target in mind. We raised this capital because we thought the business had reached an inflection point where there was really a strong use case for growth equity to accelerate value creation. Otherwise, we wouldn’t have raised the capital. Hopefully, we are trying to be a company that goes public early in our lifecycle. We want to be public in the next 18-24 months.

I think India needs large generational companies, we need Boeings, Lockheed Martins and Costcos and Walmarts; we need those sorts of businesses. That is going to be a marker of overall value creation for India.

ET: A quick round-up, if all of you can just list out what you’re chasing as a business in the next few years to be sustainable and to be profitable?

Palicha: We are aiming to be profitable in 10-12 months. Our business continues to multiply year-on-year. Hopefully we will cross Rs 10,000 crore in sales in the next couple of months.

Narang: We are still chasing growth but healthy, profitable growth. That means not focusing on what is the flavour of the month, but really thinking hard about where our cash flow comes from.

Mathur: The primary objective is growth in revenue and consequently profitability. The prime metric (for us) is product per customer. The idea is, the number of products we are able to sell to every business should grow and each of those products make money.

Keshre: As long as we can continue having customers loving us, we’ll be able to build a very enduring company. I think in the next few years, if we can set that as a culture and sustainable system in place, we will be happy.