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Why $562 bn VC ‘cash reserves’ will not be distributed democratically

cash reserves

VC ‘cash reserves’ will not be distributed democratically

Cash reserves – Even while start-up investment is still declining, venture capital firms around the world have a record $562 billion in “dry powder” that is available and ready to be used. This wealth has accumulated as a result of VC firms’ market retreat and increased caution in their investment decisions. Strong unit economics and the road to profitability are receiving more attention as a result of a confluence of global macro events, including the geopolitical crises, shifting monetary policies, global inflation that is out of control, and the upheaval in the stock market. According to a PwC analysis, during the third quarter of this year, start-up funding in India reached a two-year low of $2.7 billion across 205 agreements.

The vast unspent cash reserve will not be allocated democratically, according to Ashish Dave, CEO of Mirae Asset Venture Investments (India), despite the fact that new money and finances would continue to pour into India.

“There will be a period of ‘consolidation’ after. The businesses that successfully carry out their vision will gain market share, sales, profits, and cash flows. When consolidation occurs, these businesses will draw more investment and increase in value. While it is wonderful to see so much money coming into India, founders must keep in mind that raising money is only a milestone and not an achievement. It is not a moat; rather, it is a way to purchase resources like skilled labour, advanced technology, and time. The secret ingredient—great execution—is not a guarantee.

According to him, shrewd investors will keep an eye out for businesses that build strategic moats by adapting quickly, pivoting as needed, and generating various streams of income.

Since the beginning of 2022, we have observed that the market has begun to separate businesses that have worked hard from those that were fortunate. The process-driven unicorns have been distinguished from the rest by the markets. Investors can tell the finest funambulists from those who might fall off by how well they maintain the balance required to navigate the entrepreneurial tightrope. Founders that are committed to developing reliable procedures and a culture of learning and growth will make sure that their organization has a better learning curve. They will effectively handle upswings and downswings, he continued.

Cash reserves

Start-ups with business models requiring high burn and delayed monetization, such as those in B2C marketplaces, have the most exposure to funding risk, according to Rahul Chandra, Co-Founder and Managing Director of Arkam Ventures. According to Chandra, who was featured in the study, the lack of acquisition activity brought on by a value mismatch is anticipated to increase the mortality of cash-strapped start-ups. He said that more than $20 billion in committed funding has been raised for India but has not yet been used.

According to Pranav Pai, founding partner and CIO at 3one4 Capital, dealmaking will likely become more selective, and startups will need to demonstrate a strategy for achieving long-term success.

Of course, Indian start-ups have to get ready for a new season of investor selectivity as the world markets correct following a number of economic and geopolitical developments around H1 2022. The time has come for introspection, for creating the bonds that will bind leadership and organisations together, and for concentrating their aggression on becoming not only the most valuable but also the best-run businesses in their industries. The foundational support for the ecosystem this decade must be a combination of strict governance and a laser-like focus on sustainability.