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While the funding winter environment may have restricted the inflow of venture capital, Tarun Davda, Partner and MD at Matrix Partners, is gung-ho about the growth of early-stage startups, who remain largely unscathed by the capital squeeze and have a unique opportunity to build stronger institutions.  

“This is the best time for them to build. Every single early-stage fund has raised new money in the last 12 months, and is looking for new investment. There is a lot of dry power in the ecosystem,” Davda said during a panel discussion at YourStory’s TechSparks 2023. 

Matrix Ventures, which was an early investor in startups like Dailyhunt, Ola and Razorpay, had revealed it was raised a $450 million India fund last year. 

The firm is also looking to double down its investment in early-stage startups. 

“We meet about 3,000 companies in a year, of which we invest in 30-40. The fact that so many entrepreneurs are eager and building shows the energy and optimism in the ecosystem,” he added. 

The ongoing funding winter saw several startups double-down on unit economics and control burn rates. The timing has come as a blessing in disguise for early-stage startups to “keep their heads down” and silently build better products without worrying about the noise around, notes Davda.

“You don’t have aggressive competition or startups being funded everyday. It is time to build silently without the craziness in the market like before,” the Managing Director of Matrix Partners said, as he talked about the investment frenzy among his peers before the funding winter dawned.  

He continues, “We slowed down during the peak when the world was going crazy. Our peers were making 40-50 investments in a year at that time. If you are investing at peak, it will come out below average.” 

While boom and bust cycles are part of a big economy, it is important to learn lessons. Having said that, it is more likely for startups to repeat the mistakes when the cycle comes next. 

“We have short memory. We forget the lessons. Change in DNA takes a long time,” he said, adding that good entrepreneurs are quick to change and come with no baggage. 

Siddharth Shah, Co-Founder and CEO at API Holdings, that runs PharmEasy, and Darpan Sanghvi, Group Founder and CEO, The Good Glamm Group, supported Davde view on building stronger institutions that will last longer. 

“It is important to remember bad times. If you have a great team, you are far more resilient. Right now, early stage startups are at an equal footing with mature ones,” the PharmEasy founder said. 

Adding to onto the conversation, Sanghvi said, “There is nothing like a startup superhero. If you can stay in the system for long enough, you are a superhero. The ones who have the ability to spot the trend, and leverage the right thing at the right time to build a moat, will be the winner.”