Sequoia Capital's MD says the funding exuberance of 2021 isn't going to return for start-ups

To Rajan Anandan, who is Sequoia Capital's managing director, there is no better time to invest in India. Among the factors that enthuse him are the emergence of the consumption story and the potential of the GDP taking off significantly. “India’s per capita income at $2,500 means there is immense room for growth,” he noted.  

In a session at Goafest 2023 on “The evolving economy and the future of start-ups,” Anand elaborated on the fund inflow during 2021. According to him, Indian start-ups received a total funding of $1 billion in 2010. “In 2021, that number was as high as $45 billion. This year, we will be at $10-15 billion and the way we see it, India offers many opportunities to build many new companies,” was his view.  

For a couple of years, the Indian start-up story has been characterised by a lot of money flowing in quickly leading to very high valuations. Going to the public markets has been a difficult experience for these entities with their stocks well below the offer price. “There is no doubt 2021 was a period of exuberance on the back of a lot of capital flowing in. What we are seeing today is a situation that is back to normal,” he said quite emphatically, adding that the cycle had been corrected.  

The challenge, said Anandan, was in the start-ups that are in the midst of late-stage funding.

“If you ask me, they will have to focus all their attention on profit and nothing else. It is necessary to do this since they will need to go public,” he explained. In that context, his view was that over the next 18 months, if these companies don’t turn profitable, they will go out of business. On the specific issue of the global tech meltdown, Anandan maintained it was not a phenomenon restricted to India.

“Look at what is happening in other markets where they have faced the challenge of rising high interest rates,” he pointed out. On this point, he also said that as long as interest rates were zero, valuation was the same. “With that going up, valuations have had to adjust themselves in both the public and private markets,” he shared.

Regardless of the bloodbath in the start-up economy, Anandan was hugely optimistic.

“We will see a lot of them moving towards profitability in the next 12-18 months with high free cash flows. At Sequoia, our approach has been to invest more slowly and prudently,” he said.

To his mind, India has done a lot of work in areas such as e-commerce, payments and logistics. “Let’s be clear that 2021 is not going to be back for a long time. However, the next decade will see dozens of start-ups being as sound as the likes of a HUL," the veteran venture capitalist noted.

Picking out the instance of digital advertising to show how much things had changed, Anandan recalled his stint in Google India, where in 2011, the size of the digital advertising industry was $140 million. “Last year, we closed at around $8 billion and half of that came from small businesses. By the end of 2030, it will be at $25 billion,” he predicted.