Startups & The Future Of Technology Investments

“Show me the incentive, and I will show you the outcome.” – Charlie Munger 

The Indian technology ecosystem has been on an impressive trajectory, marked by several successful IPOs. This momentum is likely to continue as the ecosystem shifts from a top-line growth focus to prioritising sustainable, bottom-line-driven strategies. Remarkably, in just two years, companies have successfully pivoted from a "growth at all costs" mentality to one of responsible, sustainable expansion. This shift underscores the incredible execution capabilities of these companies and solidifies the belief that technology startups attract the best talent in corporate India. How else could they have transitioned so swiftly from a “grow at all costs” culture to one of responsible, sustainable growth? The missing piece wasn’t the market or the business model—it was the right incentive, as Munger so aptly points out. 

The outcome is now evident for all to see. It’s clear that the previous incentive of valuation-led growth has ceded ground to bottom-line growth as the real driver of value creation. India has seen around 250 IPOs in the last five years, with roughly 10 per cent of these being backed by venture capital—a reasonable proxy for technology companies. However, when we examine the last 12 months, the ratio of startup IPOs to all IPOs has risen to around 20 per cent. As a venture capitalist and co-founder of a growth-stage venture capital fund, I predict that this ratio will climb even higher in the next five years, approaching 30 per cent. It’s time to buckle up— we’re on the cusp of witnessing 100 technology IPOs in the country. 

In conversations with fellow investors at industry events, there’s a clear consensus on the evolving approach to follow-on capital in portfolio companies. The industry is moving away from the trend of keeping companies private for extended periods, sustained by venture capital. Today, limited partners (LPs) prefer a more judicious use of follow-on capital, combining public and private funding to support company growth. I firmly believe that while the best companies should be held for the long term, an IPO should not be viewed solely as a liquidity event. It also creates liquidity options and introduces a diversity of capital into companies, which is essential for taking them forward. This change in thinking has created a win-win situation: founders are building more sustainable businesses, private investors gain early liquidity options, and public market investors get earlier access to technology startups with significant room for growth. 

This shift will likely trigger second-order changes in the ecosystem, which I foresee in three key areas:

Decoupling of the Indian startup ecosystem from global influences: Historically, the Indian startup ecosystem has been heavily influenced by the US, with significant capital coming from American investors and early fund managers from the West. The common question posed to Indian founders was, "Which company is your global equivalent?" However, this narrative is changing as founders increasingly develop models tailored to the Indian market. The success of quick commerce, spiritual services, full-stack business models, and more are examples of this shift. As IPOs provide partial liquidity sooner, ambitious founders will shift the focus from global equivalents to identifying other countries where their ‘India-first’ models could expand. I also see founders creating companies around group travel, mineral exploration, and sustainable Indian materials without worrying about the absence of global equivalents. The VCs are learning to ask, “Which other country outside India is this relevant to, and where could you expand?”

Rise of Indian homegrown venture fund managers: Just as western markets once dominated public market funds in India, the private fund industry is currently dominated by funds based outside India. However, as the density of Indian business problems and models grows, so too will the influence of Indian fund managers. We are already seeing a rise in Indian venture funds, particularly early-stage ones, and this trend will accelerate over the next decade.

Increasing density of sub-billion-dollar market cap companies at IPO: While we can expect a few large listings from current unicorns, many of the upcoming IPOs will come from newer companies opting for sub-billion-dollar valuations. These companies will use public market funds to scale over the next five years and will likely engage in acquisitions of smaller technology firms to grow into multi-billion dollar enterprises post-listing. For retail investors, this presents an excellent opportunity to participate in the growth of the technology ecosystem. 

My past experience motivates me to engage with all three areas mentioned above, with a particular focus on building a homegrown venture fund designed to last. This will be my contribution to nation-building. Founders, what will be yours? 
 

Ashish Kumar

Guest Author Ashish Kumar, Co-founder and General Partner, Fundamentum Partnership