Founders,

We must stay close to the ground reality.

Global winds have changed:

• Price corrections: Large tech companies have seen value erosion, some up to 75%

• Growth at any cost: Companies that focused on growth without corresponding profitability (or path towards) are unable to find fresh funds

• Bulging overheads: Companies that hired in anticipation of growth that didn't come are facing a cash crunch

• Investor sentiment: Back home funding is being pulled even after ROC processes have started, and term sheets are not being honored

Many proclaim this phase to be similar to the dot com or Lehman Brothers bust and many of you would have experienced it first hand.

While things are bad, early-stage India should not be affected. Why?

• Availability of capital: There is almost $1bn of capital that early stage funds in India (pre-seed, seed, Series A) have raised over the past 24 months. That capital will be put into action over the next 24 months

• Funds down the value chain: Many growth stage funds have started dedicated early stage funds, or are seeding early stage funds, and are fishing for deals to enter before their usual stage

• Micro vs Macro: The stage we operate in deals with more micro, product market fit, customer validation, establishing business models, rather than macro, profits, exit opportunity, liquidity, etc

We will not be affected if we have:

• Growth: Companies growing 2-3x annually considering it is an early company with a low base

• Early signs of product market fit: Increasing contract values, high repeat rates, organic growth, and referrals are all signs of happy customers in a growing market

• Profitability or have a roadmap towards it: If we are profitable, fantastic. If we are not, let's plan to reach there in 24 months

• Funds for the next 24 months: Every cycle lasts for some time. If we can grow profitably while having strong signs of product market fit, and have funds for the next 2 years, we can forget about the noise and focus on business. We will come out much stronger

What do we need to action?

• Focus on key metrics: Let's forget vanity, and focus on the 3 key metrics that show growth in our business. Every business is number of customers x revenue per customer, let's find, fix & fine-tune our metrics

• Overheads = death: Paul Jarvis shared this in his book Company of One. Any expense which does not contribute to the growth of the company will require tough love. Expenses that lead to revenue, lower costs, better recruitment, brand building, customer support, and technology are always welcome. We are building for tomorrow, but we need to be alive today to see the sunrise

• Arrest leaky buckets: Focus on retention, and better customer experience. The cost to acquire a new customer is higher than the cost to retain one in most cases

• Business plan for the next 24 months: Have 2 business plans. One aspirational and one realistic. As founders, you will know when to stick to which one, and how to prioritize

Reality:

• There is always a market for companies that can deliver on growth

• There is an expectation mismatch between founders & investors. We need to talk to other founders, investors, investment bankers, and diligence vendors who are in the thick of the funding activity to know where our company stands

• Purses may tighten, and capital may not flow towards sustenance or survival rounds as investors begin to de-risk

• We need to leverage our existing cap table and get a gut check of existing investors' ability & willingness to back us again

It's not bad yet, but it may become. We will be better off if we're prepared in advance.

Best,

Malpani Ventures