You can be on Entrepreneur’s cover!

Startups Need a Plan To Brave the Funding Winter According to Krishna Vinjamuri, partner, Kae Capital, startups need to figure out how to achieve strong unit economics and limited cash burn to grow meaningfully during the current funding winter

By Soumya Duggal

Opinions expressed by Entrepreneur contributors are their own.

You're reading Entrepreneur India, an international franchise of Entrepreneur Media.

Krishna Vinjamuri, partner, Kae Capital

A startup is born when an entrepreneur takes the first leap of faith, but its flourishing relies on another vital leap—one taken by investors. Kae Capital, a Mumbai-based early stage VC fund, was founded in 2011 by Sasha Mirchandani to help entrepreneurs build large companies even from a conceptual stage. With over a decade's experience as an early-stage tech investor, Krishna Vinjamuri joined Kae Capital as partner earlier this year, just as one was beginning to hear whispers of an impending funding winter in the Indian startup ecosystem.

Reviewing last year's scaling trends when funds were abundantly available, many are now blaming startups for rashly targeting swift growth and ignoring poor unit economics and high cash burn. Disappointed with their then short-sightedness and current lack of profitability, investors are now exhibiting reticence when it comes to funding startups, especially late-stage ones. Or so the mainstream narrative goes.

According to Vinjamuri, though, investors are just returning to the normal course of business after the previous fiscal featured an unusual peak of capital deployment: "2021 was an abnormal year where many investors chose to invest large amounts of capital in a narrow period of time."

He posits Kae as rather a black sheep in this context, stating that the fund has been a bit cautious in 2021 and made very few investments. "The current market will help us provide sufficient time to have a meaningful dialogue with founders. Likely, we will make more investments in 2022 than in 2021," he says. In fact, the VC fund does not find much reason to recalibrate its valuations, considering them reasonable as it looks forward to making new investments in eight to ten companies this year. "Companies that showcase strong unit economics and limited burn while maintaining meaningful growth are likely to close rounds earlier," Vinjamuri says with regards to the fund's investment plans, adding, "Most of the other startups have to work on a plan on how to reach there."

Having said that, he seeks to temper the significance of unit economics and profitability, which have of late become important concerns among investors, with a touch of realism, explaining, "When you are starting from scratch, you need to invest to build the tech product, team etc. At this point, you may not have the margins that you can get at scale. So, for a large set of business models, it is not right to expect profitability or positive unit economics from day zero. At an early stage, we are looking to build conviction that there are reasonable drivers for unit economics and profitability to fall in line as the company scales." He concedes though, "There are some successful entrepreneurs who have pulled this off from day zero."

As for the funding crunch facing the startup sector at large, Vinjamuri offers on a cautionary note, "The gap in demand and supply for funding will be more glaring in Series B and above stages. Investors will take time to understand the business and the risks they are underwriting before making decisions."

Soumya Duggal

Former Feature Writer

Business News

I Designed My Dream Home For Free With an AI Architect — Here's How It Works

The AI architect, Vitruvius, created three designs in minutes, complete with floor plans and pictures of the inside and outside of the house.

Business Solutions

Handle In-House Projects More Efficiently with MS Project Pro — Just $24 Through April 16

It's designed to help teams stay on task with features like management templates, timesheets, generators, and more.

Business Ideas

7 Link-Building Tactics You Need to Know to Skyrocket Your Website's Rankings

An essential component of SEO, link building is not just a 'Set them and forget them' proposition, but a dance of skills and strategies.

Business Ideas

63 Small Business Ideas to Start in 2024

We put together a list of the best, most profitable small business ideas for entrepreneurs to pursue in 2024.

Business News

Here's One Thing Americans Would Take a Pay Cut For — Besides Remote Work

An Empower survey found a high percentage of respondents would take a pay cut for better retirement benefits and remote work options.

Business News

This Fan-Favorite Masters 2024 Item Is Still $1.50 as Tournament Menu Appears Unscathed by Inflation

The pimento cheese sandwich is a tradition almost as big as the tournament itself.