2021 isn't coming back anytime soon: Sequoia's Anandan

Sequoia Capital India Managing Director Rajan Anandan dismissed the ‘funding winter’ concerns of India’s startup sector and said the fall in fund flow this year was more like going back to normalcy from 2021 that saw "extraordinary exuberance" in terms of "terrific valuations".

"2021 isn't coming back anytime soon," Anandan said on Tuesday at the Nasscom Product Conclave 2022 in Bengaluru.

Indian startups have raised about $7 billion since the beginning of the current financial year, less than half of the $15.8 billion raised in the same period last year, according to data from US-based research platform Crunchbase.

Also Read: Indian startup funding hits 2-year low in Q3 of 2022 at $2.7 bn: Report

"In fact, the second half of 2020 and 2021 were really a period of extraordinary exuberance. We all know why," Anandan said, referring to how cash-rich global investors bet big on growth in Asia’s third-largest economy. About $7 trillion of funds were parked across various asset classes in the US economy then, he added.

Indian startups raised a whopping $33 billion in the period between October 2020 and March 2022, Crunchbase data showed.

While the fund-raising activity has slowed down in India’s late-stage startups, the capital raised by the top six India-dedicated funds in early-stage startups has never been as high as in the last seven months, he pointed out.

"So in that context, we're really back to reality. And what that means for startups is we are back to quality," he said.

With the fall in valuations this year, there has been a fall in growth-stage funding. FY23 so far saw only 11 rounds of funding above $100 million each, as against 40 such rounds in the same period last year, Crunchbase data showed.

Also Read: Unicorns become ‘cockroaches’ when funding dries up

While the "high-quality companies" are able to raise capital even today, they are not looking to do that since they raised enough funds last year, said Anandan.

Unlike 2021, when many early-stage startups without a good product or path to profitability passed muster with investors, the future will be different, he pointed out.

He urged young entrepreneurs to focus more on building the right product for their customers.

"I would say if you're an early-stage company, then focus on getting to unquestionable, extraordinary product-market fit. And, if you don't know what it means to have that, then please find some mentors who can help you determine it," he said.