“Startups must live within their means”

MUMBAI : Veteran angel and venture capitalist Kanwal Rekhi has justified the recent layoffs by Indian startups, calling it the need of the hour. In an interview on the sidelines of the TiE event in Mumbai, Rekhi, managing partner, SVQuad and co-founder and managing director of Inventus Capital Partners, insists that layoffs at startups took a long time because most businesses were operating on unsustainable compensation and burnout models of cash, so the slowdown in funding will help make the ecosystem stronger. Modified excerpts:

The startup ecosystem is going through a lot of pain right now. We’re seeing layoffs happening, and the funding tap seems to have run dry.

It takes the fear of God that I will run out of money. And I see that this is not a bad thing. This is a much needed healthy market correction because the fun is over. You have to learn to live alone. You have to live with more discipline. You can’t have those losses. You cannot live beyond your means and expect to get more money. Where I come from, entrepreneurs still start companies and we fund them.

Layoffs are good. And I think it’s easier for us to hire people and it’s easier for people to find a place in (Silicon) Valley. A million dollar salary is unsustainable. Finding tech talent has become so difficult. Startup activity is a bit cyclical. When there is a recession, startup activity starts to happen. People lost their jobs. It’s easier, your rents are low, your salary expectations are down. This is the best time. Startup activity occurs at the bottom of a recession. And so, where I work, I don’t see any breakdown. The same seems to be true for India.

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

They (late-stage companies) should have been profitable by now. They had to learn to live. Check out Paytm. How old is that? 20 years, right? How can you not make money when you have several 100 million dollars in income and you are about 20 years old? When would you make money (profit)?

According to that logic, many unprofitable companies are hitting the stock market. The narrative seems to be changing.

That narrative was built by people who weren’t around when this winter came, right? The main factor is the entrepreneur, disciplined leadership, the entrepreneur makes more difference than money (capital). So in capitalism, in the end, you know, capital has to be returned. No one puts capital forever in a bottomless pit.

Has India emerged as a great alternative to other markets?

I have been here (in India) for only two days. And I 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 emerged, I’d say India is arriving, emerging and everything seems to be sorted out for you.

Capital is flowing to India, China is in trouble and Europe is in trouble. So it looks like India is the country to invest your money in, the future is there, that sense is there.

But having said that, we have squandered our opportunities in the past. India will have 10 million startups and entrepreneurs in 2047. Then we would arrive. The political framework, everything is needed, our infrastructural framework should be focused on that, and we are creating a million entrepreneurs.

In India we have seen that domestic capital is now at par with global and we have seen a lot of rupee fund raising in 2021 where corporates, AIFs are finding this private investment as a very viable option. Are we now in a position where we really don’t 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 need to have a huge capital infusion. We don’t need to worry about dollar capital yet. India is a poor country. If you need trillions of dollars worth of new capital, it will not be available from India, and we should think of millions of entrepreneurs, 10 million entrepreneurs, and capital is the lifeblood of entrepreneurs, we should welcome and mobilize all capital in India, but we should we also welcome capital from all sides.

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