Brace for (Private) Impact

As it happens often, we are yet again staring at a few years where easy money will be non-existent. We will see fewer winners built on marketing moats, and a tough lesson for all of us: venture is not just about individual companies failing. It is about an entire ecosystem forgetting that equity capital has to be returned, and that it is very expensive in a market without depth.

The pain in private markets today is not coming from a single event. It comes from several factors hitting at the same time: higher taxes on capital gains, shallow market depth in India, steady rupee depreciation, and the cost of capital going up globally. Yet in a lot of my conversations with founders, there is still an unspoken assumption that the next funding round is just around the corner.

That mindset is why we still see ten startups copying the same idea or building small tweaks on existing products. And when a startup raises ₹500 crore, spends it on ads and discounts, and shuts down, people often shrug and say that is the VC’s problem. It isn’t. When startups fail to return cash to funds, the university endowments, pension funds, and family offices behind those VCs pull back from India. Domestic family offices move their money back into public stocks, real estate, or gold. Treating equity like free money makes it harder for the next ten years of serious founders to raise capital.

Going forward, VCs and PE funds will look for companies that are genuinely different, change customer habits, and have real advantages in cost and execution, not just bigger marketing budgets.

Equity is the most expensive loan you will take

Founders need to remember a simple truth: fundraising is borrowing money, and equity is the most expensive loan you can take.

With a bank loan, an EMI goes out every month, so you treat debt carefully. With equity, nobody sends a monthly bill. That makes it easy to treat a fundraise like a prize rather than a liability.

In a market with limited depth in how much consumers can pay and how many large acquirers exist, raising too much money at a high valuation becomes a trap. Investors need returns that justify their risk. When a fund invests in dollars, steady rupee depreciation of around 3.5% a year means your company has to grow 4x to 5x in rupees just to return 3x in dollars.

During 2021 and 2022, founders got used to large global funds writing quick $30M to $100M checks. Since 2023, those funds have pulled back sharply from India, creating a tight bottleneck at Series B and beyond:

• Growth rounds are hard to come by: Over a thousand startups raise Seed rounds in India every year, but fewer than a hundred raise a $20M+ Series B or C check. If your business plan needs three more funding rounds before you turn a profit, the odds are stacked against you.
• PE funds buy profits, not burn: Many founders assume Private Equity or late-stage funds will buy them out later. While PE makes up roughly 70% of all private market investing in India, almost all of that money goes into buying control of profitable businesses like hospitals, factories, financial services, and energy assets. PE funds do not bail out loss-making startups.
• Exits in India need IPO-ready profits: In the US, a loss-making startup can still get bought by a big tech company for $300M. In India, large corporate buyouts are rare. Nearly 60% of all exits happen through public market IPOs and block trades, where investors look for real profits (PAT), cash flows, and clean governance, not GMV or adjusted numbers.

Before raising at a high price, it helps to do the simple math on what that valuation requires you to build over the next seven or eight years:

Entry Valuation	Stage	4x–5x INR Exit (3x USD)	Annual PAT Needed (at 25x P/E)	Revenue Needed (at 15% PAT)
₹50 Cr	Seed	₹200 – 250 Cr	₹8 – 10 Cr	₹55 – 70 Cr
₹150 Cr	Series A	₹600 – 750 Cr	₹25 – 30 Cr	₹170 – 200 Cr
₹500 Cr	Series B	₹2,000 – 2,500 Cr	₹80 – 100 Cr	₹550 – 670 Cr
₹1,200 Cr	Growth	₹5,000 – 6,000 Cr	₹200 – 240 Cr	₹1,350 – 1,600 Cr

What separates real businesses from marketing plays

If equity is this expensive and exits require real profits, what kind of companies will actually win?

In consumer businesses, a lot of money has been invested over the last few years. Going forward, the winners will be the ones that stand out on costs, storytelling, and distribution (obviously, right?). Genuine word of mouth and real profits, not “adjusted” profits, will decide who survives.

Investors may still fund some early marketing spend, but they will quickly look for positive unit economics. Growth investors will want both growth and unit economics. Burning money for years in the hope of making profits someday is over, at least for the next few years.

This matters even more in India because our paying consumer base is smaller than most pitch decks assume. Only about 1.62 crore people in India file income tax returns above ₹10 lakh a year. When ten startups sell similar products and bid against each other on Meta, Google, and quick-commerce apps to reach that same small group of buyers, all the margin goes to the ad platforms. At that point, investors might as well just buy stock in the ad platforms.

When you sell a ₹100 product for ₹70 using investor money, people will gladly buy it. Many founders confuse discounted sales with product-market fit. The day the subsidies stop and you price that product at ₹110 to make a margin, most of those buyers disappear.

In a consumer business, only four things really separate you from the pack:

1. Costs: Owning your sourcing, formulation, or manufacturing so you can make the product cheaper than others.
2. Storytelling and word of mouth: Building something distinct enough that customers tell their friends about it for free.
3. Reach and distribution: Building your own offline or direct channels instead of paying a 30% to 40% toll on every order.
4. Unit economics: Making money on every order early on, rather than hoping scale will fix a loss-making product.

In B2B, software, and deeptech, the lesson is the same. Tough markets separate serious builders from tourists. For years, plenty of startups raised money by building thin software wrappers, copying Western SaaS tools for the Indian market, or importing hardware components to assemble here under a local brand. Neither creates a lasting advantage when software becomes cheap to write and enterprises tighten their software budgets.

If you are taking on expensive venture capital where you are competing for global dollars, use that money to solve hard engineering, manufacturing, or IP problems that take years for anyone else to copy.

For existing companies: get profitable on the cash you have

If you are already running a company today, be strict with your cashflows and assume the next growth round will not come easily.

Ask yourself a simple question: if your expenses stay flat and your revenue grows at its current pace, will you become profitable before the money in your bank account runs out?

If the answer is no, your survival depends on an outside investor writing a check in the hardest growth market in five years. When markets turn, founders usually take one of two paths:

• Confusion and inaction: Cutting 10% here and there, hoping the funding market improves next quarter, and burning through cash before being forced into a desperate bridge round.
• Practical and proactive: Facing reality early, shutting down lines of business that do not make money, reaching break-even, and using the remaining bank balance from a position of strength. Nobody ever regretted getting profitable too early.

If you do need to raise money after a high 2021 or 2022 valuation, avoid structured bridge rounds just to protect a headline valuation. Taking a round with 2x liquidation preferences or guaranteed 18% return ratchets lets you keep your valuation for the news article, but it wipes out your own and your team’s common shares. A clean round at a lower, honest valuation is always better than a messy term sheet at a fake high valuation.

Do your audits early and explain the tricky parts upfront

As companies grow, things get messy: revenue recognition, hidden costs, or delayed filings. Do your statutory audits, financial due diligence (FDD), and legal due diligence (LDD) early so your house is in order.

Every business has a few messy areas. What matters is being able to explain them clearly and keeping the paperwork ready so an investor can check it before formal diligence even begins. Sharing a problem upfront builds trust. Letting an auditor find it three weeks into diligence kills the deal.

Area	Common Mistake	What Good Looks Like
Revenue & Cash (FDD)	Pitch deck MIS, audited P&L, GST filings, and bank inflows don’t match; unpaid bills (>180 days) sit as revenue.	1-page sheet tying MIS to P&L, GST, and bank inflows; >180-day dues written off.
Unit Economics (FDD)	Hiding shipping, gateway fees, cloud bills, or commissions inside “Other Expenses”.	All direct variable costs deducted cleanly above contribution margin.
Statutory Audit	Delaying PF, TDS, or GST >6 months; >10% inventory mismatch; related-party loans; MSME dues >45 days.	Zero arrears or red flags in the audit report; monthly dues paid on time; quarterly stock checks.
Legal & IP (LDD)	Missing board minutes, unfiled RoC forms, verbal ESOP promises, or IP held in a founder’s name.	Updated cap table, signed board minutes and ESOP letters, and clean IP assignments in one folder.
The “Tricky Parts” Note	Hoping investors won’t notice an old write-off, bad batch, or dispute until deep into diligence.	A 2-page note explaining what went wrong and how you fixed it, shared before diligence starts.

Taking moonshots

“We are heading to a world in which humanity can thrive by empowering most people to fail most of the time.”

Everything above about getting profitable and cleaning up your books can sound like playing defence. It isn’t. Getting your core business to pay for itself is how you earn the freedom to go on offence without needing an investor’s permission.

This last point is for the most serious entrepreneurs. Once your core business is generating cash and your house is in order, take moonshots inside your existing company.

When you already have paying customers, distribution, and steady cashflows, you are in the best position to set up a small team inside the company to try bold new ideas. Because your main business pays the bills, most of those experiments can fail without hurting the company, while the one bet that works can open up a whole new path.

This is a good time for all of us, both founders and investors, to take stock, honestly understand our challenges, and stay prepared rather than living under the illusion that everything is okay. It is also the best time to step back and ask what hard problems are truly worth spending the next decade of your life solving.