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The Smart Techie was renamed Siliconindia India Edition starting Feb 2012 to continue the nearly two decade track record of excellence of our US edition.

December - 2008 - issue > Slowdown Impact

VCs and Entrepreneurs Must Understand Each Other

Alok Mittal
Thursday, December 4, 2008
Alok Mittal
The economic crisis is affecting most segments of the IT industry here in India, and I will specifically talk about start-up companies and the VC funding scenario.

Impact on Startups
The crisis is affecting start-ups in broadly three different ways: Firstly, fundraising has become harder, in India as well as the US. In accordance, start-ups that were looking at going in for Series B or Series C round of funding in the next 12-18 months must now look at what are the realistic chances of them being able to raise money and also consider ways to extend the runway of current funds.

Secondly, there is a business-specific impact of the crisis, which varies by startup. In the case of IT companies, it is feared that as clients cut spends, it will affect the revenues of the IT firm negatively. Similarly, start-ups relying on consumer and ad spend may be affected adversely.

Third, the economic crisis has marred the exit scenario. Public markets are likely to remain out of bounds for at least the next two years, and start-ups having plans of going public must postpone their plans. The M&A markets are also expected to be buyers’ markets.

In addition to these, there has been some talk about a drop in valuation, and it is real. As regards to Series A funding, valuations have dropped by around 20-30 percent. However, VCs are not thrilled at being able to buy at 20 percent lesser costs at an early stage; rather, they are more concerned about the outcome of the start-up they invest in.

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