Economic Downturn and VC’s Perspective (Sanjay Anandaram)

Interview with Sanjay Anandaram on economic downturn and perspective from the VC world. We will publish interviews from entrepreneurs, VCs as well as Industry leaders in the coming days.

VC investing goes through the fear and greed cycle and VCs often follow the herd. What are you doing in the current fear cycle – are you doing lesser deals, are you waiting or watching?

The current slowdown doesn’t really impact classical VCs. VC is a long term asset class and not dependent on short term fluctuations in the stock market for its returns. Early stage VCs will find the present time as good as any to invest as the really great entrepreneurs and great companies are almost always started independent of stock market momentum.

Watching carefully and doing deals is the preferred option now. Not watching and waiting.

What will demonstrate that you are taking leadership in building India’s next generation of companies?

The emergence of the next generation of quality entrepreneurial companies and entrepreneurs. “Quality” as defined by the market success and the development of the leadership team.

Early and start-up stage funding is getting difficult to raise – what would you suggest as sources of capital for someone who has not been able to so far raise funding

Well, I don’t agree that early and start up stage funding is getting difficult to raise. If anything, the environment for this stage has rather dramatically improved over the past 8 years when the first wave of young entrepreneurs emerged. There are angel networks, angels, industry, academic bodies, corporate and entrepreneurial efforts to drive match-making & funding and early stage VC funds. If someone hasn’t been able to raise early stage funding, the question to really ask is “Why Not?” The honest answer will be beneficial for all.

For someone raising a series A round, what mistakes can they make in the current funding environment

Not asking for more money! It is important to tank up on as much cash as possible without worrying excessively about dilution.

For someone raising a series B, what do they need to demonstrate to justify their valuation and funding needs.

Valuation lies in the eye of the beholder! Ensure that revenues are actually flowing in and there’s a business model that shows that cash-flow break-even and profitability can take place in a reasonable time period. The market segment they’re in should continue to be attractive and that the team has the ability and energy to scale the business after the infusion of Series B.

Have you have been through such a slowdown before and have invested in companies during such a slowdown that turned out to be huge wins for you? Please share.

The last big slowdown in the VC business was in 2001 just after 9/11 and the stock market crash in the US. We’d invested in Jareva, a server virtualisation company that pioneered a new category. It was subsequently acquired by Veritas (now Symantec) for a very happy amount.

Which industries you are most bullish about? Extension to the question – which industry do you feel would be strongly hit by recession?

Am generally bullish about technology enabled businesses that touch the Indian consumer – entertainment, education, training, retail, travel, financial services, healthcare, communication, etc. In addition, areas like logistics are very interesting.

Sectors that are dependent on accessing international markets or are dependent on credit flows will be affected.

Why do you think is now a good time to start a company?

Any time is a good time to start. Now’s a good time because only the real entrepreneurs will venture out and the plans that get funded will be those that’ve been evaluated more thoroughly.

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