‘Startups must live with their funds’

MUMBAI : Veteran angel and venture capital investor Kanwal Rekhi has justified the recent layoffs by Indian startups, terming it as the need of the hour. In an interview, on the sidelines of a TiE event in Mumbai, Rekhi, managing partner, SVQuad and co-founder and managing director of Inventus Capital Partners, insists that the layoffs at startups were long overdue as most companies were running on unsustainable models with consideration of compensation and cash burn, and thus the funding slowdown will help the ecosystem to emerge stronger. Edited excerpts:

The startup ecosystem is going through a lot of pain at the moment. We see layoffs happening and the funding spigot seems to have dried up.

The fear of God that I will run out of money is required. And I don’t see that as a bad thing to happen. This is a much needed healthy market correction because the party is over. You have to learn to live on your own. You have to live with more discipline. You can’t have those losses. You cannot live beyond your means and expect to make more money. Where I come from, entrepreneurs still start businesses and we fund them.

Redundancies are good. And I find that we find it easier to hire people and people find it easier to find a place in (Silicon) Valley. Millions of dollars in salary is unsustainable. It became so difficult to find technical talent. Startup activity is a little bit cyclical. When recession is there, startup activity starts to happen. People have lost their jobs. It’s easier, your rent is low, your salary expectations are down. This is the best time. Startup activity occurs at the bottom of the recession. And then, where I operate, I see no meltdown. The same seems to be the case in India.

You still find early-stage takers, but late-stage venture funds have pulled out. Your opinion.

They (late-stage companies) should have been profitable by now. They should have learned to live by. Look at Paytm. How old is it? 20 years, right? How can you not make money when you have several $100 million dollars in revenue and have been around for 20 years? When would you make money (profit)?

With that logic, a lot of unprofitable companies hit the stock markets. The narrative seems to be changing.

That narrative is built by people who hadn’t been around when this winter came in, wasn’t it. The main factor is the entrepreneur, a disciplined management, the entrepreneur makes more difference than the money (capital). So in capitalism, capital eventually, you know, has to be returned. No one puts capital forever in a bottomless pit.

Has India emerged as a good alternative to other markets?

I am here (in India) for two days only. And I’ve noticed there’s something about the energy and there’s an expectation that we’re on the move, you can feel it, you can feel it when you meet people, but I wouldn’t use the word India has arrived or appeared up, I would say India is arriving, a rising and everything seems to have lined up for you.

Capital is flowing into India, China is in trouble and Europe is in trouble. So India seems to be the country where you should put your money, that’s where the future belongs, that sense is there.

But having said that, we have wasted our opportunities in the past. By 2047, India will have 10 million startups and entrepreneurs. That’s when we would have arrived. Policy framework, everything must, our infrastructure framework must focus on it and we create a million entrepreneurs.

In India we have seen domestic capital is now at par with global and we have seen in 2021 a lot of rupee funds were raised where the corporates, the AIFs are finding this private investment as a very viable option. Are we now able to not rely so much on dollar capital?

Stop right there. I think that if we can mobilize all the capital, it will not be enough. We must have a massive injection of capital. We shouldn’t be worried about dollar capital just yet. India is a poor country. If you need trillions of dollars, new capital will not be available from India, and we have to think of millions of entrepreneurs, 10 million entrepreneurs, and capital is the lifeblood of entrepreneurs, we should welcome and mobilize all the capital in India, but we should also welcome capital everywhere.

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