Serial entrepreneur Ronnie Screwvala cautioned that venture capital (VC) and private equity (PE) firms significantly raise their expectations once a company aggressively raises funding, subtly criticising startups that chase large-scale fundraising.
“A seed round of $20 million sets you up for immense pressure. If you’re planting a seed with $20-$30 million, the expectation isn’t for just one tree—they’ll expect an entire forest, and they’ll expect it soon,” said Screwvala in a fireside chat with Shradha Sharma at TechSparks 2024, YourStory‘s flagship startup-tech event.
“By raising that much in a seed round, you’re setting yourself up for an incredible amount of expectation. So instead of congratulating that person, I would empathise with them. Raising $30 million at this stage comes with significant pressure,” said Screwvala, Co-founder, upGrad and Swades Foundation.
Screwvala’s comments come at a time when VC and PE funding is gradually making a comeback in India’s startup ecosystem, particularly in hot sectors like artificial intelligence (AI). However, startup valuation has dropped substantially compared to the highs reached during the pandemic. Screwvala, however, said that sustainability should be celebrated more than valuations.
“We shouldn’t celebrate unicorns. It often means you’ve received a lot of ‘free money’ and a valuation that’s inflated beyond its actual worth. You then feel compelled to spend that money, but the spending-to-scale ratio won’t hold up, and the growth story will eventually falter,” he said.
“Scaling a business is a very tricky process, which is why you need patience to build something serious. Unfortunately, many of the narratives we hear aren’t that serious. A business is built, it gets a high valuation, but the two don’t always align. That myth needs to be shattered,” Screwvala added.
Screwvala also took a jibe at some edtech companies that have struggled to scale and even to survive in the recent past, without naming them.
Once a booming industry during the pandemic, the edtech space has recently seen a significant drop in investor interest, largely due to the reopening of schools, colleges, and physical tuition centres. This shift has reduced the demand for online learning solutions.
A seasoned entrepreneur, Screwvala has worn many hats—as a film producer, venture capital investor, and startup founder. During the event, he shared insights from his entrepreneurial journey, highlighting how his “lower middle-class” background helped him persevere through setbacks and failures over the years.
