??? The risk-off sentiment

Let’s dissect why the tech landscape looks so unrecognisable today after a golden era of ideas and investments.

These are strange times in India’s startup ecosystem. India-focused VC funds are sitting on record ‘dry powder’ of $23 billion, capital they can invest. The risk appetite, however, isn’t what it used to be, so a limited number of deals are passing muster.

It’s not just tech financiers. Everyone has become more circumspect. Startup births seem to have slowed down, with widespread layoffs, shutdowns and valuation markdowns at mid- to late-stage companies dulling the exuberance around entrepreneurship.

Many top executives have delayed plans to launch their own ventures, sticking to their day jobs instead. So, while investors may be keen on early-stage bets, the pickings are slim.?

“Quality deal flow is down by at least 25-30%. It is probably the lowest that I have seen since 2011-12,” said a VC who has been making early-stage investments since 2007.?

In an uncertain environment, would-be tech founders are taking longer to formalise their ambitions. Earlier, the shift from the idea stage to company formation used to happen in three months. Now, it is taking as long as a year, the VC said.

Founders who completed seed or Series A rounds at the end of 2021 or in the early 2022 are also acting with caution. Many are approaching VC firms to raise another round of funding at the existing valuation or a slight premium. They are seeking cash despite using barely a quarter of their previous round.?

“They are worried that they may not be able to raise funds later on. This group includes entrepreneurs who didn’t return calls in 2021 when investors were lining up to back their companies,” said the founder of a VC firm, which recently closed a mega early-stage fund.?

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