Mumbai-based venture capital (VC) fund India Quotient has seen at least 60-70% of its portfolio enact cost-cutting measures including human resource and operational costs, said a senior executive of the early-stage fund in an interaction with FE.
Gagan Goyal, general partner, India Quotient, said that most of the new and incoming founders from early-stage startups who reach out to the fund for potential funding have also slashed their team size compared to 2021 when funding activity was elevated.
“Most new incoming founders realise that a large team at the very starting point doesn’t help so much. So, it’s quite evident that founders have now become sensitive towards hiring large number of employees in the early stages,” Goyal said. He also pointed out that early-stage founders have also been cutting down employee-related expenses and salaries after witnessing the ongoing layoffs wave in tech and IT which most experts attribute to ‘over-hiring’.
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In the first few weeks of January 2023, more than 1,600 tech employees were being let go per day on average in India and globally, according to data sourced layoff tracking site layoff.fyi. In January 2023 alone, Indian startups including Swiggy, Dunzo, Sharechat, Rebel Foods, Captain Fresh, BharatAgri, Ola, DeHaat, Skit.ai, Coin DCX, LEAD School, Bounce, Cashfree laid off several hundred employees.
In 2022, around 1,024 tech companies globally and in India both big tech firms and startups laid off 154,336 employees. November 2022 witnessed the most amount of tech layoffs which impacted close to 51,800 employees across 2017 companies in India and globally, according to layoff.fyi.
India Quotient currently has an AUM of $250 million and in total, the Mumbai-based VC fund has raised more than $180 million across four different funds. It is currently investing from its fourth fund for which it commitments worth $64 million from domestic and global investors (or limited partners).
Goyal said that despite the ongoing funding slowdown, it will not be cutting its deal flow size and that each partner at the fund will aim to close at least 3-4 deals in 2023. He believes that early-stage funding will be the least impacted in the ongoing funding winter and that the competition amongst both domestic and global VC funds to fund early-stage founders will die down in 2023.
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“In 2023, the competitive intensity among at early stages has in fact increased for both India-domiciled funds and global funds. I expect funds to compete to be the first one to write cheques from $1 million to five $7 million in new startups. However, late and growth stage rounds will see less competition, and this might be hard to raise,” according to Goyal. He also pointed out that rather than focusing on individual exits, India Quotient’s strategy for the next few years would be concentrated on providing a higher rate of return for its limited partners. India Quotient’s maiden fund which was closed in 2013, reportedly provided LPs with a net return of 5.9X in November 2022.
Goyal also said that finding quality ideas or readily investable business across earl-stages has dwindled drastically, hence the fund has corrected the deal flow accordingly. “Our plan is to close at least 12 to 15 deals this year, and frankly we don’t want to slow down our pace of investments when compared to 2022, and neither are we looking to get very aggressive. However, in 2019 and 2020, we did more deals than we did during 2021 and 2022. So our average number of deals have in fact reduced in the last two years,” Goyal added.