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Seasoned Indian VC Says that Startups Today are Becoming Capital Efficient

Seasoned Indian VC Says that Startups Today are Becoming Capital Efficient
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Lavish expenditure on marketing and hiring expensive talent in herds are old industry trends! With investors becoming more cautious about their bets, startups have started calibrating marketing and other expenses more strategically today.

Entrepreneur India spoke to Karthik Prabhakar, Director of Fund Raising at IDG Ventures India, on how startups are approaching capital usage these days.

At the World Startup Expo, conducted by Cocoon Ventures, Karthik said, “The biggest emphasis should be on where the expenditure happens. So far the focus has always been on top-line growth – month-on-month growth. While your revenue is growing 15 percent is your cost growing 20 percent?  That does not make sense!” he said

“ What we are seeing in companies today is that while there will be capital available they still need to be capital efficient. Hence people are getting more capital efficient today,” Karthik, who also co-leads marketing at IDG, added.

According to Karthik, who is also an IIM Bangalore graduate, what’s really happening at companies today is that the top guys are delegating to the next level of executives saying that you have to grow the top lines but you should also focus on cost efficiencies. If I am spending $10 on something, I have somebody to cut that $10 to $9, he said.

“Clearly what comes across very evidently is the ad and marketing budgets. In the initial days you always  spend X amount you will get some sort of customer base, but at Series B stage and beyond people are doing a lot more analytics. For example, in some cities radio ads work and some cities it’s not that important, just digital marketing works,” he added.

Managing people costs

Karthik also emphasized that it is also important not recruit in herds, which also happens sometimes as startups are worried that they might not get the best talent. “We are also seeing people calibrating a lot on that. Startups CEOs are now saying that “I will hire people but will also have a clear career path for the guys so as to utilize them efficiently,” he adds.

IDG’s investments include companies like Myntra, PlaySimple, Bizongo, LensKart, FirstCry and more.

Edition: December 2016

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