Early Stage Startups in India

With a lot of capital inflow, a strong founder network (who are giving back to the startup ecosystem through investing, mentoring & advisory), deep penetration of the internet and availability of quality learning content, the industry is really hot right now. ????

India's early-stage startups raised more capital in October-December 2021 than all of the fundraising that happened in 2020, according to a CB Insights report. As many as 533 deals worth $10.3 billion were struck in the three months ending Dec. 31, 2021.

In the first quarter of 2022, 33.8% (146 out of 433) of deals were into early stage startups with Bangalore topping the cities with the highest number of deals (51%). Delhi grabbed the second position with 17% of the deals.

Fintech, SaaS & Gaming remains to be the hottest sector for investors betting on early stage startups (Qualitative Analysis).

Indian & Global Investors are racing to win early stage startup deals in India as evident from Y Combinator’s W21 batch featuring the largest group of Indian startups (second highest in terms of demographic).

Even for high-profile investors such as Sequoia there are huge rewards for spotting a promising startup in its initial years as they can buy a much larger stake in a startup for lower prices before the valuation of the startup .?

Investing early reduces the maximum amount a portfolio firm may lose should things go wrong.

Despite all the strong movement of capital in the ecosystem there are a lot of challenges for Smaller firms as

??? Involvement of bigger firms closing the round by themselves

??? Lack of resources to optimise on brand compared to bigger VC

??? Higher valuation offered in the market making it tough for micro cheques?

“This also leads to unnecessary high valuations which becomes really tough to compete and an overall loss to the startup ecosystem .”

Amidst this chaos some of the Micro VCs have figured out how to source deals through very niche brand positioning (Together for SaaS startups ) or repositioning them through their portfolio (Titan Capital for D2C Brand ) or by creating the brand by their own name (Vaibhav Dhormidikar from Better Capital). Here are some of the top performing early stage VCs basis the number of deals (INC42)        

While a decade back founders were mostly people with? strong work experience & deep industry network , now we see plethora of founders emerging from different backgrounds

??? Tier 2 / 3 cities?

??? Women founders?

??? Solo Founders?

??? Founders from legal background?

??? Tier 2 + College founders?

??? School students Founders

??? Folks returning from International countries to pursue entrepreneurship?

But with all this hype it’s easy for early stage founders? to fall into some bad traps which I have identified a early stage founder must be aware of ;

?? Saying Yes to Bad Capital?

?Saying yes to investors who are only here for returns.

?Paying advisory fees for equity.

?Diluting too much too early.

?Raising from local businessmen who are here only for profits.

??? Chasing Vanity Metrics?

Bringing traction through paid marketing with little or no proof of actual business building.

Focusing on all stakeholders except customers.

Increasing DAUs or MAUs for strong PR instead of revenue or retention.

?? Chasing Funding over building a business?

Building strong narrative & creating strategies to drive FOMO over real execution.

Falling into VCs narrative “Web3 is hot”, “ Gaming Industry is growing at a rapid pace” and ultimately picking these sectors without real conviction.

?? Falling into narratives outlined by PR

“Startup X has raised 20 Million $ with 10M registered users” getting affected negatively by this sort of PR and changing the course of your own business where in actuality, there might only be 10k active users.

???? Identifying bad advice

We see a lot of nano /micro influencers emerging in the startup ecosystem giving advice on a broader / 1-1 scale, it’s really important for a founder to filter out bad advice vs good advice.

?? Falling into the trap of hustle culture?

“Work hard 15 hours a day”, “Life is not about fun”, “Breaks cost your business” & many more.?

Yes startup is about hustle, grit, determination & execution but it’s important to take breaks because if the ship captain is mentally unstable, how can he lead from the front?

But guess what? We all are learning and it’s ok to commit some mistakes, what’s important is that we learn, improvise and never re-commit to those mistakes. So cheers to the entire startup ecosystem as we head deep towards the decade of startups.