By Anuj Bhargava
Capital allocation across the global venture ecosystem has become increasingly selective. The Indian private financing market, coming off the highs of 2020-21, continues to be active and rewarding for quality companies with excellent execution and sustainable financial performance. Investors are looking at backing transformative companies that can demonstrate profitable scalability. “Growth at all costs” is a theme that has been left behind. Founders must understand this reality to maximise their chances of a successful fundraise.
Founders are best advised to take a targeted approach to fundraising in the current environment. We recommend our founders draw up a list of investors who are interested in the sector and ask if they are the right bet for the stage the company is in currently. Building a strong investment case and positioning vs peers is extremely important. It is critical to be specific and nuanced on the size and use of proceeds for the planned fundraise.
Founders who raised in the post-pandemic funding euphoria were part of a unique but temporary moment. The current market environment is different and historical data points are of limited relevance. In today’s competitive financing landscape, navigating through the path to fundraising success requires a much more strategic approach and understanding of what investors are looking for.
Investors are looking to justify valuations based on forward-looking projections and outlook today. They want to see sustainability in the vital metrics of the business and that companies need to now start focusing on profitability and cash flow more than ever before. Founders should also be prepared for deeper diligence periods and a longer time frame for a term sheet and closing.
First-time founders tend to get overwhelmed as the market changes, worrying that they will need to pivot hard. But, oftentimes, businesses may not have to undergo major transformations. The shifting market realities present an opportunity for them to prioritise the focus areas and metrics that matter. It is also worth noting that equity is the most expensive form of capital and so founders are encouraged to look at alternative sources like debt and working capital lines.
Some of the most impressive startup success stories were born out of challenging times. Good companies and high-quality founders are always able to navigate markets to their advantage and come out stronger for it. The Indian tech ecosystem remains as vibrant as ever and is likely a pathway to build a large, transformational and sustainable company that drives value to all stakeholders.
Anuj Bhargava is the Managing Director at Lightspeed. Views are personal.
