private boom v/s public gloom

how startups need to adapt in such a capital cycle (India)

August 2019

the India market is in a unique spot for early stage tech entrepreneurs, at least in recent history. with this post, I’ve attempted to explain the disconnects in the market, and a shared a few pointers for founders on how to navigate in the short-term.

public markets are cautioned by a slowdown in consumer spending across many sectors; banks & nbfc’s are going through a prolonged correction cycle; and between the India/Pak + USA/China + UK/Brexit geo-political complexities – there is enough caution in the winds globally.

Apr to Aug 2019 MMI data from
relative scale legend: Green is Greed, Red is fear

here is some evidence: auto, garments, FMCG, real-estate.

what might this lead to? —> consumers will likely delay non-essential spends, enterprises will likely delay capex & try to reduce opex. effectively, purchases & upgrade cycles will be delayed. there are many spiralling effects to this which are unpredictable even to the most sophisticated market observers.

on the contrary, private markets (at least in tech) are at a new local-maxima of optimism. Seed & Series-A rounds are closing faster than I’ve witnessed in the past 5-6 years. Repeat/successful founders are raising outsized first cheques, and Series-B+ rounds are happening at rich valuations! … almost as if private tech investors aren’t even looking at what is happening in the public markets & the global macro.

to a large extent, I get why private tech investors do not worry about short term pessimism in public markets – they are backing entrepreneurs & ideas that will take shape and grow over the next 18-24 months – hoping things will turn for a positive very soon.

for Founders, here is what worries me

  1. when you raise capital, there is an urge to rack up costs – team, infrastructure, marketing, etc.
  2. one or two quarters in, you will start to feel the pressure to show “hockey stick growth” to your oft impatient investors
  3. in a negative sentiment cycle in public markets, there is little you can do to change that, despite our best intentions & strategies.

public market sentiment is a real-time reflection on the broader economy (beyond the tech bubble), and when/how that turns and what brings it back is an N dimensional multi-variate calculus problem. Ultimately, both markets are connected, and so when public markets are in crises, private markets won’t be left far behind.

as Entrepreneurs, what should you consider doing?

  1. manage your fixed costs carefully
  2. look for structural ways to extend your runway
  3. set expectations with your investors/board — have that tough conversation sooner rather than later (the good ones will be supportive/accommodating)
  4. get laser focused on quality metrics over vanity metrics
  5. some companies/products thrive in such environments, if you are one of them, double down and get more aggressive (but this is rare)

I don’t mean to be an alarmist, but you have to regulate your behaviour when the external environment has fundamentally changed – and for most of born in/after the 1980’s we haven’t really seen a true recession in recent memory. If we end up in one, don’t let that kill your startup!

(discount-led products/services could see an artificial surge in usage, but that could be a double-whammy to your burn rates & possibility of surviving the cycle)

thx to Mona, Tarun, Sai, Aakrit, and Soaib for feedback