venture capital: Ashneer Grover tells VC firms to ‘right size’ themselves before advising startups

New Delhi: Ashneer Grover, cofounder and former managing director (MD) of fintech platform BharatPe, has advised venture capital (VC) and investment firms to first think about “right-sizing” themselves in the wake of the current economic slowdown before telling their portfolio companies and startups to do so.

Grover’s hard take on VC firms came as several large investment firms like Sequoia Capital, Lightspeed Venture Partners, Craft Ventures, and Y Combinator, etc have sent memos and footnotes to their portfolio companies and startups on how to endure the ongoing crisis.

“It’s ironic that VCs are singing aright sizing’ of portfolio companies in chorus. The fact is VCs firms need to right-size their own teams by 80%. I still haven’t figured out why you need more than 5 people in a VC firm. If they were tight themselves – portfolio cos won’t be so far off,” tweeted Grover.

Sequoia recently created a 52-slide deck, first reported by The Information, titled ‘Adapting to Endure’, for the founders of its portfolio companies.

“Our intention in gathering today is not to be a beacon of gloom. But we also believe that winning in the years ahead is going to depend on making hard, decisive choices confronting uncomfortable challenges that may have been masked during the exuberance and distortions of free capital over the past two years,” the deck read.

The VC firms are advising startups to focus on sustainable growth, reduce cash burn, cut costs and understand that an economic recovery maybe 18-24 months away.

With capital becoming scarce, Sequoia Capital told its founders’ community to tighten the belt and focus on profitability.

“We are just beginning to see how the increasing cost of money flows through to impact the real economy. If you’re stepping back and thinking twice, it’s not just you. Belt-tightening and priority reassessment will have second and third order effects, as one company’s costs represent someone else’s revenue or purchasing power,” said the leading VC fund.

Startups are facing the heat as the funding winter is here.

Backed by SoftBank and Tiger Global, Unacademy, which recently laid off over 600 employees, has predicted a funding winter that can last as long as 18 months, saying it will cut costs wherever required to weather the dry spell and become profitable.

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In a letter to employees, Unacademy’s co-founder and CEO Gaurav Munjal said that “we must learn to work under constraints and focus on profitability at all costs”.

“Winter is here. We must change our ways. We will focus on organic growth channels instead,” he wrote.

“Some people are predicting that this (funding winter) might last 24 months. We must adapt. This is a test for all of us. We must learn to work under constraints. We must focus on profitability at all costs,” Munjal told employees.

“We must survive the winter.”

Realising that ‘funding winter’ has finally set in after a strong rally of more than two years in the pandemic that allowed Internet-driven startups to grow exponentially across the spectrum — edtech, healthtech, e-grocery, food delivery and online home services, large investment firms have decided to park their money elsewhere, like in Web3.0 and gaming.

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