Open to Investing in Promising Companies Post-revaluations

DBR Ventures positive about the next year and start-ups in the space sector

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Dr. Aarti Gupta, chief investment officer, DBR Ventures on drying up of funding sources for start-ups says,"With the global economy experiencing various shocks and signals pointing towards economies already entering/having entered a recession and the monetary tightening, things will get tougher for startups as well. During the past few years, the Indian start-up ecosystem saw a massive boom. With over 1,000+ big and small VC funds, and more than 10k angel investors, it has been fairly easy for startups to fundraise. However, this might change in the near future. Funds and investors are getting cautious about the gloom in the economy. The positive side to this is that, companies that are truly resilient and are genuinely providing solutions to real problems will get the money."

DBR Ventures
Dr. Aarti Gupta, Chief Investment Officer, DBR Ventures

"As an investor, I am expecting valuations to get recalibrated, and am looking forward to investing in good startups who survive this bear market, as these are the ones which will be the outliers and the ones giving big returns," she adds.

As per her calculations, "Early-stage investing will still see funding, because they are smaller cheque sizes and we have a large number of people investing in this sector. However, with the listed space seeing some resistance, exits/buyouts/IPOs might be difficult in the next 12-18 months," says Gupta."

As for their funding strategy, "We are being cautious at this moment. I personally feel six months down the line we will see some very good opportunities. We are also conserving cash in case existing portfolio companies need funds for their next raise. However, we are still actively investing in good opportunities."

"We are conserving capital to ensure we can back our existing portfolio companies in the follow on rounds," she adds.

However on bridge rounds, she has a contrarian view. "I do not think there is a correlation to this. It is the survival of the fittest. Money will pour in for the best ideas whether it is bridge round or priced round."

On their strategy when burn and runaway becomes an issue in their portfolio companies,

"In all market conditions, the startups need to have an ongoing assessment of the burn and the projected runway as they cannot be caught in an unplanned zone. This assessment does alter in times when new investment flows are difficult or the industry as a whole is reassessing the valuations and the business performance parameters. Currently, we are going through both. As a natural reaction, we suggest a relative tightening of the belt with an intent to increase the runway just in case the next round gets delayed. This usually involves stopping team expansions unless absolutely necessary, trimming any non-essential expenses, and restructuring them. Usually, the development expenses (which will have a lag effect on topline) are pruned a bit. But current business support expenses are not touched. As investors and in some cases as mentors, we have to increase the handholding in tougher times. We believe that good quality companies always have a ready supply of capital irrespective of the market conditions. The only thing which might change is the valuation and the size of the next raise," she says.

So, is it that investors and startups are focusing on unit economics and profitability now? Says Gupta, "I do not think so. Unit economics is always critical for startups. But in some cases, one might end up spending more than the income generated for some periods of time in order to create a new market. In my opinion, this is okay at an early stage for a company trying to do something new in order to get scalability."

On their plans for the next year, Gupta says, "I am quite positive about the year to come, there is some pain in the markets, but once we see that ease out, there will be solid investable opportunities ahead and I am looking forward to it. I think India has a massive opportunity with some amazing startups coming in the space sector (drones, satellites), also anything that is consumer facing that will help improve the lifestyle, health, education or increase employability opportunities for individuals.

DBR Ventures : Factsheet

1. Year of Establishment – 2017

2. No Of Employees -

3. Portfolio Size – 20+; LP in 5+ funds