Up to 50% of startups will have to sell or shut amid funding winter: Tribe Capital’s Arjun Sethi

Tribe Capital will continue investing in companies that enable commerce in India, founding partner Arjun Sethi told ET, even as a funding slowdown in technology affects dealmaking across the globe.

Talking about the rout faced by the tech sector in public and private markets, Sethi said India was similar to the growth market in the United States (tech growth stocks), where late-stage companies have shaved off their enterprise value by 50-70% with sectors like fintech being hit the most along with workflow and Software as a Service (SaaS) application companies.

Sethi said around 50% of companies would have to sell or wind down globally and in India amid the tight funding environment.

“I think consolidation is good for the ecosystem… it will be harder to raise the next rounds unless the companies are in the top 5-10% of logos and performance; (these companies) will not have issues…”

The Silicon Valley-based early-stage venture capital firm plans to invest around $800 million to $1 billion in India over the next few years.

“Today, out of the $1.5 billion that we deployed, roughly 20% is in India,” Sethi said.

The fund made its maiden India investment in logistics aggregator Shiprocket in 2020 and has since followed it up with BlackBuck, a logistics startup, and Khatabook, which helps small businesses keep digital records.

Founded by former executives of Chamath Palihapitiya’s Social Capital, Tribe’s founding partners include Sethi, Jonathan Hsu, and Ted Maidenberg, who have backed companies such as Slack, Snapchat, Carta, Gusto, across their two funds.

“Despite the downturn, if I take a look at a five-year average in terms of valuations, and funding in the region, it is a healthy slope and I don’t see that changing if I take another 5-10 year forward outlook,” he said, adding that the downturn may continue for three years in a worst-case scenario.

“In 1999, 2000, 2001 – you had a lot of global macro events like we have today, probably more, and that took about two-three years to recover…. That was far worse than where we are today… This is sentiment-driven and being aggravated by the global demand slowdown; it could change pretty quickly.”

Shiprocket, Sethi said, has the potential to be valued up to $100 billion? Yes

Temasek-backed Shiprocket’s product will get better over time as it has placed itself at the “nucleus of a commerce transaction”, which will create a network effect, he said.

A network effect is a phenomenon that occurs in internet companies when the product gets better as more people start using it, like Facebook or Uber.

“Shiprocket owns the transaction and the system between the merchants, the customers, and there’s a level of trust that’s been built, where they can build stuff out,” said Sethi. “You don’t have that with companies like PayPal or FedEx, WooCommerce, or even Delhivery, because they’re facilitating only one part of the logistics, they don’t think about their customers.”

Source: Economic Times

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