Goals Of Founders & Investors Are Not Aligned: India Quotient’s Anand Lunia

The goals of Indian startup founders and investors are not aligned, Anand Lunia, founding partner at India Quotient, said at Inc42’s Fintech Summit 2022 while speaking about why startups are not able to last longer than they currently do.

“I’m sorry to admit this, but founders and VCs are not aligned. They are aligned for a period, but the short-term goal of a partner in a large VC firm, where there are 10 partners competing, is not aligned with the goals of a founder, unfortunately,” Lunia said.

Citing the example of Nykaa, Lunia said that startup founders should aspire to bring the next generations into their ventures. “But make it last that long first,” he said, pointing to the relatively short survival period of Indian startups.

Talking more about the longevity and long-term thinking that founders should have, Lunia said, “The investors can diversify to 40 companies, while the founder has only one company. Founders have to think of the next 50 years.”

For context, there are more than 4.2K fintech startups in India. However, only 500 of them are funded by investors, and there are about 31 soonicorns and 21 unicorns. This means that the chances of a fintech startup even getting funding is about one in 42.

Talking about the funding boom seen in the Indian startup ecosystem in 2021, Lunia called it a result of ‘brain freeze’ and the writing of ‘random’ cheques. He reckoned that investors are becoming more realistic now. However, he also pointed out another point of divergence between founders and VC firms.

“Today, founders are also slow in changing. Founders have anchored the expectations at a level as if it were the beginning of 2021, and today they are not going to accept that a seed deal will be at around a third or a half of what they were expecting a year ago. That has to change,” he said.

There is no dearth of money, it is about pricing and anchoring expectations, he added.

The ongoing Russia-Ukraine war and increasing inflation have forced central banks across many countries, including India, to raise policy rates. This has also hit the funding of Indian startups.

As per Inc42 data, Indian startups raised almost $19 Bn of funding in the first half of 2022, making it the best-ever first half of any calendar year. However, compared to H2 2021, the funding was lower by 41%.

Commenting on the funding slowdown, Anand Lunia said, “Over the last two years, founders thought short-term and developed bad habits, which have now resulted in them trying to grow and also reduce burn significantly.” 

The Covid-19 pandemic led to a rise in digital adoption in the country, giving a boost to many tech startups. Indian startups raised nearly $42 Bn of funding in 2021.

“These bubbles occur every two-three years. People who survive this downturn will again fall into the same rat race when the next bubble comes in. This is the problem,” Lunia added.

Talking about the layoffs being witnessed in the Indian startup ecosystem, Lunia said that it is a matter of survival for the startups and the whole ecosystem in general. “Please let companies go of some expenses. Don’t berate a CEO for firing people; the poor fellow is trying to survive.” 

Anand Lunia said that Indian startups employ nearly 3 Mn people today. The ecosystem will not survive if they are not allowed to do a “10-30% correction”. “They have to become efficient. We have to go through that pain and that is okay.”

Indian startups have so far laid off around 11,168 employees in 2022, according to Inc42’s layoff tracker.