Before Parting With Equity, Founders Should Think Twice: Deep Kalra
While it does not cost much upfront and founders don't realize it at the beginning, it hits hard later when they see the amount of value they created and gave away to investors, said Kalra, executive chairman, MakeMyTrip
At a time when funds from investors are hard to come by, here is a word of caution. "While equity money seems cheap, it is the most expensive capital and founders should beware," said Deep Kalra, founder and executive chairman, MakeMyTrip.
While it does not cost much upfront and founders don't realize it at the beginning, it hits hard later when they see the amount of value they created and gave away to investors, added Kalra, while speaking at the India Internet Day event organized by TiE Delhi NCR.
Startup founders part with their shareholding to get money from investors as the money comes without any interest.
Kalra also admitted that while 'growth at any cost' will remain the underlying motto of the startup ecosystem, founders need to be careful. He was pointing to the fact that while it is easy to start a company, scaling up is harder and this is where founders take decisions which are not prudent.
Talking about governance issues, while it is true that odd cases may not be symptomatic of the entire ecosystem, alertness levels need to be increased before aberrations convert into full-scale pervasive problems, added Kalra.
Cues can be drawn from the rise and fall of Zomato. The online food delivery major's stock went from a lifetime high price of INR 169 to below INR 42 in a span of a few months. The company made a stock market debut on July 23, 2021 and according to reports, investors of Zomato lost more than INR 1 trillion after a sharp decline in market price of the company. A large number of retail investors who bought Zomato in the IPO exited after the stock began its downslide. The stock tumbled below the INR 42-mark on July 26, closing at INR 41.65 on the BSE.
Given the current investment scenario in the startup ecosystem, founders should be vigilant. July 2022 was the first month this year when the total venture capital (VC) funding raised by Indian startups fell below $1 billion, said a new report released by London-headquartered GlobalData. "Until recently, the largest venture capitalists and private equity players in the world were scrambling to grab a share of the Indian startup ecosystem, which was touted as a promising alternative to China. However, the harsh 'funding winter' has reversed the fortunes," stated the intelligence provider.