Focus on building good businesses instead of raising capital: Avaana Capital’s Swapna Gupta

After seeing massive investments in 2021, the Indian startup ecosystem is now facing a funding winter—making it the worst in at least five years, as per industry estimates.

However, according to Swapna Gupta, Partner at climate-focused venture capital firm Avaana Capital, this is certainly not the end of optimism. The ecosystem is energised today despite tough macroeconomic conditions, she noted.

“You can call it funding winter or sheer pessimism in the market, but what I see as a silver lining is that India is still a bright spot,” Gupta said.

In a fireside chat at TechSparks 2023, Gupta said that despite global troubles like the US-China conflict, the Russia-Ukraine war, the aftermath of COVID-19, and rising inflation, fund managers globally are willing to invest conservatively in the Indian market.

However, founders must focus on building strong businesses instead of diverting all their attention to raising capital, Gupta added.

“The US ecosystem is facing some stagnation and inflation, and it remains difficult to pump in and out money from China. India is an emerging market,” Gupta said, adding that most investors follow the rule ‘in winters, I plot and plan; in spring, I move.”

Avaana Capital—whose portfolio includes Ninety One Cycles, Eggoz, and Turno—is focusing on getting through the tough period patiently without the need to “run 200 miles an hour”. Founders must use this time to reset and think about building for the next 12 months and get the right valuation instead of focusing on the next decade, she added.

Navigating the winter

“The market is the same for everyone. It will treat founders differently in terms of what they bring to the table in terms of ideas,” Gupta said as she spoke about how founders can steer the tough macroeconomic conditions.

Founders, even those building bootstrapped businesses, must focus on execution now more than ever, she added.

"There is enough validation that India makes good consumer and enterprise products, which are suited for the world. Climate, too, currently offers good opportunities for startups at the moment," Gupta noted.

The China Plus One model—the business strategy to avoid investing only in China and diversify the business into other countries—also makes India an attractive market for global investors, she said.

“The world is our oyster right now. We have the potential to build for the world,” Gupta said.