Hyderabad, May 28 It is time for Indian startups to pause and re-assess the situation, says T-Hub Chief Executive Officer Mahankali Srinivas Rao as the sector faces a challenging spell due to various factors.
Heading one of the largest technology incubators which is creating a world-class ecosystem within the country to support and nurture entrepreneurship and innovation, MSR, as he is popularly known, told in an interview that the startups should adopt simple strategy of 'Reflect, Reassess and Restart (RRR)'.
Ever since its launch in 2015, T-Hub has nurtured around 2,000 startups across sectors like healthcare, edutech, fintech, software as a service (SaaS), logistics, internet of things (IoT), machine learning (ML), artificial intelligence (AI), blockchain, electric vehicle, consumer tech, and cleantech.
T-Hub is a public-private partnership between the Telangana government and three premier academic institutes - International Institute of Information Technology-Hyderabad (IIIT-H), the Indian School of Business (ISB), and the National Academy of Legal Studies and Research (NALSAR) University of Law.
MSR shared views on various aspects of the present situation faced by Indian startups.
On the challenges faced by startups:
In the early half of the last decade, when the Indian internet companies were yet to take off, Tiger's participation in seed, Series A stage was very prevalent. However, the fund has been aggressively writing huge cheques and minting unicorns in India, especially in the last two years.
The Indian startups are now facing many challenges... the Black Swan Moment that Covid created, witnessed an unprecedented response. The monetary and fiscal policy response that followed allowed startups to grow and thrive. We have reached a saturation point this time and thus things seem bleak.
I think it's time to pause and reassess the situation.
On the factors responsible for the current situation:
Multiple factors have affected the situation such as Russia-Ukraine war, controlled monetary flow from other countries, especially the US Fed's interest rate increase have led to a pullback of money flow.
Other factors such as capital crunch, and unavailability of cheap capital are also there. As capital has gotten expensive, the situation is troublesome. Hence, inflation, interest rates, and war have compelled investors to look for companies that can produce near-term certainty.
On the strategy that Indian startups should adopt:
The simple strategy for startups is to Reflect, Reassess and Restart (RRR). A successful entrepreneur is always looking for opportunities. Whenever there are big shifts, opportunities open up, and challenges also arise.
One should embrace reality and avoid hasty decisions. Businesses will need to demonstrate a clear path to profitability rather than looking for revenue growth.
The likely impact on the overall startup ecosystem:
The startup ecosystem will turn resilient and stronger to face future uncertainties. Perseverance is the only way ahead. Good businesses with a clear path to profitability will continue to be funded.
Is this just a passing phase? What are the lessons to be learnt?
This is definitely a passing phase and key lessons for entrepreneurs are:
Controlled dependency on external financial support
Focus on profitable growth
Need for a strong team with an aligned vision
Are more layoffs likely in the coming weeks?
Businesses which have pursued growth at all costs without an underlying economic rationale are being compelled to re-examine strategy. There will be some rationalisation from a headcount standpoint. But this is just a phase, we are sure that in the long term, the impact would be less.
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