Rohit Goyal, Managing Partner, Windrose Capital

Rohit Goyal is a seasoned entrepreneur and investor with nearly a decade of experience in venture capital, driving early and mid-stage investments across India’s rapidly growing startup ecosystem. He has founded and partnered with technology and manufacturing ventures in India, China, the UK, Germany, and Sri Lanka. A Director at TwarIT Mobility and an Associate Financial Planner, Rohit holds an MSc in Management from City University, London, and is passionate about deeptech, innovation, and creating long-term value for founders and investors.

In this authored article, Rohit explores how soaring seed-stage valuations in India are challenging startups and investors, turning early-stage pricing issues into a moment of reflection and opportunity.

India's venture capital ecosystem is witnessing a sharp surge in pre-seed and seed stage valuations. Startups raising their first rounds often receive valuations that seem disconnected from their current operational reality.

New fund optimism in the asset class, lowering forward returns in the public markets and young capital in the system are setting high benchmarks at the seed and pre-seed stages, but when those traction numbers don’t hold up as startups move to the next funding rounds, their valuation multiples start to drop, making it harder for early-stage investors to get justifiable returns. This cycle is bound to affect the entire ecosystem.

If a company at the seed stage is valued at Rs 25 crore, the real question is would anyone buy it for even Rs 50 crore today? In most cases, probably not, because most of the work is still left to be done. Yet, these high valuations keep getting assigned, creating issues down the line and not justifying risk adjusted returns to the earlier investors.

The intent here is not to assign blame. Instead, the objective is to highlight a crucial question, Are valuations today truly reflective of a business’s real, tangible progress, or are they merely projections of future potential? When seed-stage valuations are set too high, it doesn’t just impact that one funding round it affects the entire investment lifecycle for the startup.

Also Read: How India's Startup Ecosystem Is Turning Hustlers into Industry Disruptors

This whole situation is making it difficult for startups to justify returns to early believers while continuing to raise fresh growth capital once PMF is achieved as founders find it harder to justify their value in later funding rounds which rely more on the performance merits.

Rohit Goyal, Managing Partner, Windrose Capital, says, "One day I was talking to a foreign investor from the Middle East, and during the conversation he said, 'Man, you guys give any valuation!' Even though deals here are done in rupees, not dollars, Indian startups are often priced as if they are already global players".

Instead of valuing startups based on what they might achieve in the future, investors in subsequent rounds often focus on what they have already built and how efficiently they are using capital.

For example, if a startup has raised funds and increased its ARR from Rs 10 lakh to Rs 80 lakh per month with a reasonable valuation multiple, that makes sense. But when companies raise huge sums before even launching a product, it raises questions and invites trouble in the ecosystem.

Of course, some industries genuinely need significant upfront capital in heavy R&D etc like when startups are creating entirely new industries. But for most businesses, valuation should reflect actual progress, not just potential.

This lack of sensitivity to valuations creates a ripple effect each round gets priced higher, and by the time growth-stage investors step in, the historical performance doesn’t justify the price. As a result, returns are shrinking, and interest in the asset class is declining. That’s why the conversation needs to shift from what might happen to what startups have already built and how efficiently are founders using capital. 

When seed-stage valuations are set too high, it doesn’t just impact one funding round it affects the entire investment lifecycle for the startup.

Conclusion

At the end of the day, successful fundraising is about ensuring that every round of funding sets the company up for long-term success not just securing the next step at a higher price. If we don’t address this now, we risk turning venture capital into a less appealing asset class, where inflated valuations lead to unsatisfactory returns.

It’s time to refocus on long-term value creation and bring back rationality to early-stage investing. The solution isn’t complicated it’s just about being mindful of what we are building and how we assign value to it.