Spring Time For Second-Time Founders?

Amid the ongoing funding winter, there’s also a spring of second-time and serial founders starting up again in India.

From those who quit startups under mysterious circumstances to those who exited after acquisitions — startup founders in India with the right (and wrong) experiences are coming back to the board with new ventures.

It helps that this is a good time for seasoned practitioners to launch new ventures, and not just because the focus of investors is on the early stage. The larger motivation of wanting to solve the problems of monetisation and sustainability and rewrite the mistakes of the past have also spurred more entrepreneurs to bring new ideas to the table.

• Decoding Ola Electric’s IPO Plans: Experts believe that many of Ola Electric’s ambitious plans do not align with reality and are exaggerated given the state of India’s EV market
• Mooofarm In A Crossfire: The Accel-backed startup is caught in an alleged embezzlement tangle with multiple allegations flying around between the founders and the former finance head
• Milkbasket Layoffs: After exits at the CXO level, at least 130 employees of Milkbasket are set to lose their jobs amid restructuring at the Reliance Retail-owned company

Second Time Luckier?

Even before 2021, the peak of startup funding in India, the likes of Kunal Shah and Jitendra Gupta had already proven that some founders tend to see disproportionate amounts of funding in the second venture. CRED raised $600 Mn+ in its first year, while Gupta’s Jupiter secured $24 Mn in its seed round in 2019 soon after launching.

But 2021 saw a number of noted entrepreneurs start new innings, given that investors were using the bullish market to spray funding.

For instance, Abhinay Choudhari, a cofounder of BigBasket exited the company to launch laundry solutions startup LaundryMate, after Tata acquired a majority stake in BB in May 2021.

Similarly, Milkbasket cofounder and CEO Anant Goel stepped down from the startup and launched another venture called Sorted. Ola cofounder Ankit Bhati’s new startup Amnic also got launched in 2021 and was backed almost immediately by investors such as Peak XV Partners.

A Pattern Of Exits From Big-Name Startups

The trend of second-time entrepreneurs grabbing the investor eye continued in 2022.  For instance, BharatPe’s Bhavik Koladiya quit to become a shareholder and CEO at OTPLess.

In 2023, we have seen one or multiple cofounders of Sharechat, Zestmoney, Teachmint, and Chingari quit their companies, besides GoMechanic, which was largely due to governance issues.

Teachmint cofounder and former CTO Anshuman Kumar is now the founder of Duolop, a relationship management app for couples and spouses. Based on his tweets, we can also see that GoMechanic’s Rishabh Karwa is working on a new idea related to places and listings.

The trend has been clear for a number of years. But the funding winter has accelerated plans for many founders. For instance, there is a realisation that the product-market fit, which was almost taken for granted when VC money was flowing, is more critical now.

At the same time, some of these entrepreneurs are no longer able to influence these matters in their company because things have changed drastically since they started out, or simply because there is new ownership that takes the decisions. The stagnation of business in other cases forces entrepreneurs to take up new challenges.

Founders are also realising that their products or services are not solving the problems in the right direction. As we saw with CRED’s Shah and Jupiter’s Gupta, they often turn to areas of their expertise and start anew. Finding the right product-market fit by diving deep into a problem is more crucial than ever.

As Zerodha cofounder Nithin Kamath tweeted a few weeks ago that founders are likely to quit companies because they are often shortchanged by the better and more positive outcomes due to how diluted their equity is by the time they exit.

“If all the investment has to be returned, there will likely be no upside left for the founders & teams. This is when interest in running the business can drop,” Kamath had said.

The Investor Bias For Second-Time Founders

But being a seasoned founder is a major advantage for these entrepreneurs over those who are starting up for the first time. They already have the investors in place in many cases, early due diligence, which is already admittedly thin, gets even thinner in the case of a noted founder. Past experience reduces chances of failure in many cases.

After proving that he can scale up a business with Ola Cabs, Bhavish Aggarwal was able to raise millions for Ola Electric much more easily. Ola Electric has also scaled up rapidly, and even though there are challenges in the business, the company has managed to carve a separate identity, thanks to the inherent trust that investors have in Aggarwal.

But the bias can also be a significant weight on investors at times and can blind them to some red flags. After the Housing.com fiasco, Rahul Yadav bagged millions in funding for Broker Network in 2021 and as we saw in our investigation, this money was not exactly put to good use.

Nevertheless, investors we spoke to acknowledge that maybe 2023 has changed some of this blind faith that VCs had on serial entrepreneurs. Even those who have the experience of building and running are being evaluated less leniently.

More Serial Founders Incoming 

As we have heard from several VCs and investors over the course of the past few months, the focus on sustainability and profitability has forced a new mindset among founders.

The fact that early stage capital is more easily available for the right valuation means that ideas are more likely to be backed if it’s an experienced hand running things. Angels and VCs are more positive about early-stage investments in FY24 as they are primarily looking at the value over a four-five year horizon.

Given this turn in the market, founders prefer to start off from scratch rather than trying to turn the heavy ship of scaled-up startups around. That job is likely to go to professional CEOs as founders exit — one of our predictions in January for the year 2023. Even startups looking to list in late 2024 and 2025 are likely to rejig leadership teams, including founders, this year to allow new CEOs time to bed in prior to listing.

Plus, a greater emphasis on corporate governance systems has reined in founder influence on operations, with specialised leadership positions such as CFO or CTO being more relevant these days.

While publicly no investor would want to admit to this, the fact is that rich valuations have made it harder for founders to sustain the startup, and therefore, the better option is to return cash to the investors and start off again.

Another reason why it’s looking like the season of second-time founders in India.

Announcing FounderX By Inc42

While serial entrepreneurs have some advantages, those who are looking to join the founder pool cannot ask for a better time either.

We firmly believe that now is the best time to start up. Building on Inc42’s mission to accelerate India’s startup economy and our success with AngelX & CapitalX, we’re announcing FounderX, an eight-week immersive programme for aspiring startup founders.

With India’s top 1% founders and operators as coaches and sherpas, FounderX is bringing the best of the Indian startup ecosystem to aspiring founders.

Our fellows will work in teams, validate ideas with real customers, master the art of building the right team, test their business model in sandbox environments and even learn how to raise funds by pitching to marquee investors, with no full-time commitments needed for this journey.

Check Out FounderX To Know More

Sunday Roundup: Startup Funding, Tech Stocks & More

• Funding At New Weekly Low: Indian startup ecosystem witnessed a significant drop in funding this past week as a mere $42 Mn was invested across 16 disclosed deals. Looks like the second half of the year is off to a worse start than the first six months
• Nazara’s Profitable Start To FY24: The gaming giant reported consolidated profit of INR 20.9 Cr in the first quarter of the current fiscal, significantly higher than its position last year

• Info Edge Vs Rahul Yadav: Info Edge has sent a legal notice to Rahul Yadav’s Broker Network after its attempts to audit the company went nowhere due to alleged non-cooperation by the management
• BYJU’S Markdown: Peak XV Partners would be significantly marking down the fair value of its investment in the edtech giant in August 2023, according to reports

That’s all for this week. We will see you next Sunday with another weekly roundup, and till then you can follow Inc42 on Instagram, Twitter (aka X) and LinkedIn for the latest news as it happens.