Investors are professional spouses of founders: Pankaj Makkar of Bertelsmann India Investments

Investors are like professional spouses of founders, said Pankaj Makkar, Managing Director of Bertelsmann India Investments at TechSparks 2023 in Delhi, emphasising the commitment and support that investors bring to a startup’s journey.

“The entire passion that entrepreneurs and entrepreneurial teams are bringing to the table and trying to solve massive problems that India has seen and trying to come up with extremely innovative answers, I think is the most amazing thing that we see as investors joining the journey, and then building those companies with those entrepreneurs,” said Makkar. 

“I actually call investors the professional spouse to a founder. We are going to be there with you guys for 10 to 15 years of the journey. Sometimes you will nag us, but from that perspective, we will build a company together. I think that's the most fulfilling thing for me, personally—when we go and spend time with entrepreneurs building amazing companies,” he added.

Joining him on stage, Rohit Sood, Partner at Bertelsmann India Investments, agreed with Makkar, adding that he continues to be as bullish on India’s growth story as he was 10 years back, and nothing has changed for him when it comes to investing in startups in the country.

“We come into companies with a very long-term view. What keeps us excited is the people to be very honest. Because as the India story is building, the ecosystem is only maturing better, and smarter founders with the most amazing ideas are coming every day,” Sood said.

“The kind of founders and businesses we are looking for is exactly the same. You're still gunning for category-creating companies, and we think that there is a lot to come yet, and we are extremely excited about that,” he added.

Makkar and Sood’s comments come at a time when Indian startups are witnessing one of the most challenging funding periods, owing to macroeconomic challenges. Startup funding in India has dropped sharply for the second straight year after touching an all-time high of over $40 billion in 2021. 

Moreover, the cost of money has gone up with central banks across the globe tightening monetary policies, effectively putting an end to the easy money era of 2021. Consequently, investors have started asking startups to focus more on metrics like profitability.

However, Makkar and Sood had a different view. 

“Unfortunately, what has happened is the whole talk of profitability has become so strong that even at seed, Series A, and Series B level, people are talking about creating profitable companies very, very fast. At the end of the day, if we want to find a company growing at 20%, we can find those companies in the public markets. We don't want to be in the private markets and take extra risk of a non-saleable asset,” said Makkar. 

Hence, when entrepreneurs say that they are not growing at 100% but at 20% and are profitable, "we have to politely refuse such founders because that is not the risk profile we want," he said.

"We want something in the middle—a fast-growing venture asset that may not be profitable, which is fine at the early stage. But please don't become profitable before Series A or Series B. This is not what we are looking for,” he added.

While Makkar and Sood acknowledged the lack of capital available at later stages, they said there is enough dry powder available in the early stages. While investment metrics have become tighter, good companies are able to raise capital.

Further, over the last quarter, deal activity has picked up at early and growth stages, with close to 20 mid-stage deals since October.

“A lot of entrepreneurs who are out here listening to us, it continues to be a good time to be an entrepreneur and raise money at seed, Series A, and Series B stages,” he added.