The realm of startup investing is in flux, with an evolving landscape necessitating a recalibration of conventional thinking. For insights into this important shift, we sat down with Alok, a seasoned venture builder who has successfully established and grown multiple companies from scratch. His insights and experiences underscore the changing paradigm in startup investing.
Alok’s journey and experience in venture building offer valuable insights into the changing investment landscape. He explains that in the current economic climate, where funds can dry up swiftly, investors are increasingly drawn to businesses demonstrating a faster profit cycle and a lower burn rate. Startups, he says, should strive to develop business models that become viable quickly, even at the expense of extremely rapid growth which often results in significant cash burn.
To illustrate the importance of a faster profit cycle and a lower burn rate, Alok uses the example of Byju’s, an Indian edtech startup. Despite having a high valuation and substantial funding, Byju’s has reported significant losses over the past few years. The company’s losses escalated 17 times to Rs 4,500 crore in the 2020-21 financial year, largely due to increased costs associated with business promotion and employee benefits. Alok highlights this case as an example of how a high burn rate can slow down the profit cycle.
So how can startups ensure a faster profit cycle and lower burn rate? According to Alok, the key lies in building a sustainable business model that can withstand economic uncertainties. Startups should maintain a close watch on their burn rate, aiming for positive unit economics. Furthermore, they should also consider their business’s impact on society and the environment. This approach will not only make them more appealing to investors but also help in building a resilient business capable of long-term success.
Investors too have a crucial part to play in this changing paradigm. Alok suggests that investors should prioritize startups that demonstrate a clear path to profitability and contribute positively to society and the environment. They need to be aware of the risks associated with the growth-at-all-costs approach and give serious consideration to the long-term viability of the startups they invest in.
When asked about his advice to startups navigating this new landscape, Alok emphasizes the importance of embracing the shift. He recommends startups to build a sustainable business model, maintain a lower burn rate, aim for positive unit economics, and consider societal and environmental implications. These steps, according to Alok, can attract investors while ensuring the startup’s long-term success.
Looking ahead, Alok believes the focus on sustainability and profitability is here to stay. He anticipates greater emphasis on these factors in investment decisions in the future. He predicts that startups demonstrating a clear path to profitability, making positive societal and environmental contributions, and showing resilience in the face of economic uncertainties, will be well-placed to attract investment.
In conclusion, Alok’s insights bring into sharp focus the necessary shift towards sustainability, profitability, and societal impact in the startup investment paradigm. His perspectives serve as a roadmap for startups navigating this evolving landscape, and emphasize the important role that investors must play to foster this change.
