Taking A Calibrated Approach To Funding
Agarwal already looking at start-ups in climate tech, climate + fintech
Pearl Agarwal, founder and managing director, Eximius Ventures is a far-sighted early-stage investor. Says Agarwal, "We had been building our portfolio keeping in mind a possible market correction by the end of 2022. Hence, we would not want to make many changes to the portfolio but continue to focus on the sectors we have been investing in – fintech, healthtech and gaming. Most of the solutions offered by the startups in our portfolio are pretty resilient. Within these segments, we will be leaning a little more towards products that have low income elasticity."
"Having said that, we have also been suggesting portfolio companies to start focusing more on organic growth channels, reducing customer acquisition cost and focus on higher customer retention to survive the funding winter," she adds.
"The Fed recently announced one of the sharpest interest rate hikes in the recent past. This is going to have repercussions across both private as well as public markets. As valuations correct in the public markets, private markets will also see corrections across all stages. While there is still dry powder available with venture capital firms, they will become more calibrated in their decision-making, " she says.
She adds, "We are already seeing a correction in valuation in the early stages. If valuations correct for the public markets and late stage companies, early stage investors are left with no choice but to ensure that they readjust their valuations as well. We have already slashed our valuation expectations in the early stages by 30%-40%."
The global financial, economic and geo-political conditions are likely to affect funding for, "Growth and late stage companies would be the first to get impacted since they are most likely to be directly impacted by the volatility in the public markets. However, as capital dries up across the system, early stage companies would be impacted as well."
"We are seeing more of bridge rounds come up in the last few months as companies try to increase their runway. Companies that can afford to wait for 12-18 months will work with the runway they have. The ones that cannot survive will need to come for bridge rounds as they grow to justify the valuations they received in their previous rounds. However, this is also becoming difficult for founders since investors want to wait and watch which companies are better positioned compared to the rest," she shares.
"Having said that, we have also been suggesting portfolio companies to start focusing more on organic growth channels, reducing the CAC and focus on higher customer retention to survive the funding winter."
Eximius Ventures too is treading with caution. She says,"We are definitely getting more selective this year. We are ensuring that the companies are building from a first-principles perspective and are fairly valued given the current market scenario. We believe that in the early stages, companies that are focusing on catering to a non-discretionary segment and are solving for a deep use-case are likely to perform better than the ones that are going after segments that are more discretionary in nature."
On the issue of burn and runway in their portfolio companies, "Not a problem in early-stage yet. However, the first approach will unfortunately have to be to revisit existing costs and growth plans to see if there are ways to trim it. If we start to see runway become a problem, we ask founders to revisit future growth plans to see if it is sustainable; understand and solve for inefficiencies in the current organisation structure and slow down the pace of current growth if absolutely required. We ask companies to start focusing more on partnerships and organic growth channels to maintain their growth rate, and focus more on monetisation to increase runway," she says.
Nevertheless, Agarwal is optimistic. She says, "We are quite excited about 2023. It will be time for real builders to come to the market and build for the long run. Efficiency and lean building can often position a company for success in the long run. We will continue to invest in fintech, gaming and healthtech along with Web 3.0. In addition to these segments, we have also started to look into climate tech, especially climate + fintech opportunities."
1. Year of Establishment – 2020, (Launched fund in 2021)
2. No Of Employees - 10
3. Portfolio Size – 15 portfolio companies