The startup ecosystem in India has experienced a surge of activity as cheap money drove investment in a wide range of business ideas during the pandemic. However, private equity players are now seeing a shift in founder behavior as startups take a more mature approach to profitability.
In a recent interview with Business Insider, Mukul Gulati, President and Chief Investment Officer of Zephyr Management, discussed the changing landscape of the Indian market and the challenges and opportunities it presents to investors.
With over 30 years of experience in the global market, Zephyr Management has been present in India for about 17 years, focusing on both venture and growth capital investments. Gulati emphasized the need for a local approach in India, considering the importance of strong management teams and execution in emerging markets.
As the era of easy money comes to an end, investors are looking at India with a more critical eye. The excessive fundraising and inflated valuations seen during the pandemic are being reevaluated, leading to a healthier venture capital ecosystem.
Gulati noted that founder behavior has also improved, with a shift towards a focus on cash flows and profitability rather than valuation. As a result, the market is seeing a more sustainable and balanced approach to business growth.
When it comes to exits, Gulati acknowledged that the Indian market poses challenges but is also showing signs of improvement. The IPO market is becoming more selective, with an emphasis on cash flows and profitability. Additionally, financial sponsors and strategic sales are becoming more attractive options for investors.
Overall, Gulati’s insights shed light on the evolving dynamics of the Indian startup ecosystem, highlighting both the opportunities and challenges that lie ahead for investors and founders alike.