Startups are Scrutinizing Burn Rates & Exploring Ways to Achieve Profitability Sooner: Mayuresh Raut, Seafund  

As we sat down with Mayuresh Raut, Co-Founder and Managing Partner, Seafund, he gave unparalleled insights into the startup landscape during the funding winter phase. In a detailed conversation with Amit Singh, he provides a candid overview of the challenges startups are encountering and the innovative ways they’re navigating these obstacles. From adapting to changing valuations to leveraging unconventional marketing strategies, this interview unveils the dynamic strategies that entrepreneurs are employing to stand out and succeed in an ever-evolving market

Amit Singh: Can you elaborate on the most common challenges faced by startups during the funding winter phase and how they are working to overcome these challenges?

Mayuresh Raut: The startup landscape has its own cycles, and funding winter phases are something we’ve encountered periodically. It’s a natural part of the investment ecosystem, occurring roughly every five to seven years due to the lifecycle of various asset classes. Startup founders who have been through these cycles before are more prepared to tackle the challenges. However, it’s essential to understand the current scenario.

In 2023, businesses with solid product-market fit, positive economics, and strong leadership will still be able to secure funding. But the valuation landscape has shifted. We’re essentially reverting to valuation norms of around 2019-2020, which is a significant change from the recent past. On the other hand, startups that haven’t found their market fit, lack positive unit economics or face internal leadership issues will struggle to attract capital. Many of them might even fail.

This trend is already in motion due to the excess capital influx from 2021 to mid-2022. Startups that were dependent on the availability of easy money are now experiencing the reality of tighter funding conditions. As a result, they’re being forced to reassess their strategies.

Amit: How have regulatory changes and government initiatives impacted the funding landscape for startups in India?

Mayuresh: Regulatory changes and government initiatives have played a crucial role in shaping the funding landscape for startups in India. Unlike some other countries, India has chosen to treat public goods as truly public, rather than letting big tech companies keep them within their walled gardens. This approach opens up opportunities for startups to access valuable data and create innovative solutions.

Initiatives like the National Payments Interface (NPI) and healthcare reforms have enabled startups to access critical data through APIs, fueling innovation. Structural reforms such as the Goods and Services Tax (GST) and Fastag have further formalized the economy and provided startups with untapped data.

Moreover, the Indian government has actively supported startups through various schemes, tax exemptions, and incentives. This environment has attracted both local and international investors, as it provides a platform for startups to create solutions that align with India’s growing digital economy.

Amit: Could you highlight sectors that have experienced significant growth despite the funding challenges?

Mayuresh: The decline in funding has affected all the sectors equally, but there are some that have been affected particularly badly.

EdTech is an example. As you very well know, most investors overlook the fact that the pandemic was not going to be the way the world was gonna operate. That was just an aberration. We will eventually go back to a hybrid world.

However, there are a few sectors that have managed to still stand up well. At least in the short term, SaaS will still continue to attract a whole lot of money.

FinTech is an area where India has a huge lead over even mature markets like the US. This is one of the areas where India is a few years ahead of the Western world, and this will again play to our advantage. The growing middle class and the increasing number of micro-transactions through platforms like UPI and payment stacks contribute to the growth of FinTech.

In addition, e-commerce as a space will continue to rise because there are huge untapped spaces. A lot of Bharat still has to be pulled into the digital economy space.

Emerging sectors such as electric vehicles (EVs) and digitization of traditional industries like manufacturing and logistics are also on the cusp of significant expansion. These sectors are not only vital for India’s growth but also attract attention from investors due to their long-term potential.

Amit: How are startups adapting their strategies to align with cautious investor preferences and market demand?

Mayuresh: The strategies that startups are adopting depend on their stage of development. For those that have already secured funding, the focus is on recalibrating their valuation and financial goals. It’s essential to set realistic targets based on the current valuation landscape. Burn rates are being scrutinized more closely, and startups are actively exploring ways to achieve profitability sooner.

Early-stage startups, however, are concentrating on demonstrating their product-market fit. They are intensively gathering data from customer interactions, refining their offerings, and closely monitoring key metrics like customer acquisition cost (CAC) and lifetime value (LTV). The emphasis is on showing tangible value to investors.

Amit: Can you share examples of unconventional marketing and branding strategies that startups are using to stand out in a crowded market?

Mayuresh: In today’s fast-paced world, convenience and personalization are key differentiators. Startups that provide inclusive content, build strong communities, gamify user engagement, or offer tailored recommendations stand out. For instance, parenting-focused startups like FirstCry provide not only products but also valuable content for parents. Robinhood gamified investing, attracting a younger audience. ClearTax simplified tax filing, offering convenience to users inundated with complexities.

The startups that create unique experiences or align with customers’ values also gain an edge. Brands like Patagonia, which emphasizes environmental causes, resonate with consumers looking beyond just products. These strategies help startups engage with their audiences on a deeper level.

Amit: It’s evident that international investors are increasingly showing interest in the Indian market. Despite a cautious approach, funds from foreign investors are flowing into India. In this context, what strategies do you think startups should adopt to attract investors?

Mayuresh: The origin of investment, whether foreign or Indian, doesn’t hold paramount importance, especially in the realm of venture capital. Our focus as investors, much like startups, is governed by a specific time frame. We operate within the constraints of returning capital to our own investors, be it high-net-worth individuals, family offices, or institutional investors. Our investments often hinge on well-defined investment theses or sector-specific strategies.

However, the crux lies in acknowledging that while we might have a broader perspective on technological and economic shifts in the next 3 to 5 years, founders possess an unparalleled understanding of their domain. Their expertise and comprehension of their industry often exceed ours. This becomes a pivotal fallback for investors. A remarkable founding team that intimately grasps their product, coupled with unique insights into their sector, can sway investor decisions.

It’s worth noting that the most pragmatic founders comprehend that a decade or more is typically necessary to forge a sustainable business. This is particularly relevant in economies like ours, where regulatory frameworks are evolving. Comparing this longevity to the half-life of radioactive materials is intriguing. Rapid growth within five years could, in fact, elevate the probability of subsequent failure. Investors are thus inclined towards founders grounded in their approach, well-versed in their industry, and dedicated to crafting enduring, profit-generating ventures. Building with the expectation of a swift acquisition in four or five years might be tempting, but it’s a risky assumption to stake an enterprise on.

Amit: What advice would you give to aspiring entrepreneurs who are considering entering the Indian startup landscape, particularly in the current scenario?

Mayuresh: Entrepreneurs, by nature, possess distinctive qualities. Their resilience, ability to rebound from setbacks and persistent optimism distinguish them. This drive keeps them upright even when circumstances seem daunting. Entrepreneurs are exceptional at both maintaining an unwavering focus on their projects and observing the broader business landscape.

Today, Indian startups must recognize a fundamental shift. China’s global position has altered significantly in recent years. What was once viewed as a dependable growth partner for the Anglo-Saxon world is no longer the case. This shift presents a golden opportunity for Indian startups. With their unique vantage point, they can capitalize on India’s emergence as the last substantial frontier market with a democratic framework and corporate governance standards. This provides an optimal environment for Indian startups to collaborate with global corporations.

India’s strategic placement within the global supply chain is becoming increasingly evident. As China’s dominance diminishes, India stands poised to fill the “plus one” position in the manufacturing realm. This shift is buttressed by the Indian government’s dedication to fostering growth in key sectors, such as manufacturing, electronics, defense, and electric vehicles. Founders should remain watchful of these evolving dynamics.

However, the advice is not to blindly jump onto trending sectors but to leverage these shifts in their business strategies. Even if not directly operating in these fields, understanding these changes can help founders align their ventures for success. The transition from byte-based businesses to those grounded in physical applications is underway. Sectors like material science, pharmaceuticals, robotics, defense, and aerospace are gaining prominence. As startups look to the future, recognizing these changes and tailoring their strategies accordingly could be the key to sustainable success.