What’s happening in the venture market?

This is the questions that journalists are asking us most often these days. Broadly, what are seeing is as follows:

  • Portfolio companies are still going strong, and have made the adjustments required to tide through the current environment. This applies both to potential business impact (in cases where there is slowdown in customers’ purchasing behavior), and to planning follow-on rounds of investment. Unless there are more major shocks in future, things should be under control here.
  • Deal flow is still strong – we haven’t seen any drop in deal flow, nor in new companies being started. If at all, we are seeing some more push amongst senior talent to do a startup now. Can that last? I dont know. If overall level of financing remains low, I think it may have impact on new businesses being started – especially those that seek venture financing.
  • Venture financings are clearly down – the bar is higher, some funds have run out of money, and other such causes. Later stage valuations are more reasonable, but not necessarily at a level where markets are clearing – perhaps may take a few more months to get there.

What is your sense on the above? Are you seeing people around you getting more aggressive or conservative regarding starting out? What change of behavior are you seeing amongst VCs?

5 Responses to “What’s happening in the venture market?”

  1. If you say Venture financing is down, and it was never very large in India, then slowly number of startups will diminish and possibly only the kinds that have early break even will survive.

    What does this mean for the Venture Industry? Surely majority later stage investing cannot give the kind of returns that are expected of VC firms?

  2. Krish says:

    Given the reasonably long period of courtship between VCs and entrepreneurs, conversion rates (pitches-to-deals) remain abysmally low – exacerbated by the Recession.

    The R word has knocked the stuffing out of many a likely startup founders that now cling on to their jobs as long as they have one for keeps. VCs have always been risk averse and their combing has gotten finer now.

    But I am hopeful. The Recession has shaken everyone out of their complacency. Now that they’re weather beaten, they take time to look inwards and fix things before they go out. They recognize the need to wear that frosty crust off their hides. The global equity indices have begun their northward climb and if that’s an early indicator, a couple quarters of strong performance from the street (both Wall and main) should bring back the level of optimism necessary for everyone to get back with gusto.

  3. Hi Alok,

    My observations are driven by primarily what I am seeing in my interactions with other start-ups as well as within my friends at IITB (My batch got out in 2000 and so has been in the corporate world for about 9 years).

    *I see that a lot of people have left stable jobs with the desire to start something over the past 9 months. This wave does not seem to have slowed down in my opinion. Those who have lost their jobs or are reasonably confident of getting into b-school are resigning early to get a 9-12 month window to pursue their ideas.
    *There is increasingly an understanding that capital to get a business off the ground in India and to some traction is very limited – 20-30L which is what most people have saved up with a few years of work experience (2-3 founders put together).
    *Experienced people do recognize that enterprise customer money is easier to come across and really the best place to focus immediate energy – esp. overseas. I see quite a few batch mates spending 80% of their time in the States or the UK/France while a co-founder mans the ship in India. Really a 200-300k USD deal and an anchor customer is all the financing the business needs to get off the ground.
    *Mobile, Rural, Micro finance continue to be hot with the first time entrepreneurs while Enterprise software, B2C businesses seem to be the place where the repeat entrepreneurs are focussed probably because of their existing relationships with customers in those segments.
    *Sales with Wall Street or the European banks have really slowed down and most guys targeting those banks are now looking to the Middle East but struggling to deal with the culture there.
    *People are coming up with innovative ways to reduce the entry barrier into business – webinars, smaller cities, partnering with batch mates who have started off a bit earlier and so have the infrastructure (office, developers etc.) and running the business as well as personal life from home are all happening.
    *Angel investments are remarkably hard to come by even for ideas which I feel are fundable. At the same time, very few people I spoke to have spent any time identifying or reaching out to angels. They have met with VCs though with limited success due to the early nature of the businesses.
    *I don’t think all people are looking at building skypes and googles. Quite a few are taking the conscious path to do quality work at a limited scale in India and to use entrepreneurship as a means to move back to India for social reasons while at the same time generating personal income in the 1cr+ a year mark through their knowledge and expertise.

  4. Santosh says:

    Hi Alok,

    I’m an Entrepreneur out of Pune and am also with the Pune OpenCoffee Club.

    We’re seeing what could be the initial stages of an Pune angel investment network coming together, thanks to renewed interest in investing and mentoring startups. There’s also a spurt in the overall number of first-time entrepreneurs and initiatives.

    The enthusiasm and the energy is clearly there.

    Is this happening because of a void in seed-stage finance? Hard to be sure, as evidence is primarily anecdotal. The bar for institutional money is certainly higher.

    Do you see IPO possibilities continuing to remain backed up this year? What are the ramifications?

    – Santosh Dawara

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