Startup Profitability Timelines Probably Halved Amid Fund Crunch: Accel's Subramanian

A shorter path to profitability is becoming the standard as tighter access to capital becomes the norm, according to Accel's Barath Shankar Subramanian.

"The cost of capital has gone up significantly in the last two-to-three years... which means anybody starting out here has to fundamentally look at building a strong and resilient business which probably has a shorter path to profitability," Subramanian, partner at the venture capital firm Accel, told BQ Prime.

"If you were thinking about getting to profitability in five years, you probably have to shrink that down to maybe half the time or cut down the business burn and get to, like, contribution-level profitability in a shorter time frame," he said.

Subramanian said this shift is here to stay and that the "ecosystem is also internalising that quite well".

Accel, which has been operating in India since 2008, has backed startups like Flipkart, Swiggy, and Cure Fit. The firm is currently in its seventh fund for the country. The fund, with capital worth $650 million to be allocated, is its largest one yet for early-stage startups in India and other southeast Asian countries.

Subramanian said the amount of capital in the system has definitely "shrunk". "Not the dry powder in the system, but what is actually being deployed has definitely shrunk in the last two–three years," he said. "So, this tightening means that as a founder, you have to be very real about how you're going to use that resource to build your company."

In terms of corporate misgovernance in startups, Subramanian said there are multiple reasons why the ecosystem has been seeing a string of such instances.

"Depending on which sector you are in and how you estimated the market versus what the reality has been, there might have been some mismatch. But it's also a function of the pace at which some of the rounds happened," he said.

"When there was excess capital available ... some of the milestones that were set were really not realistically achievable. So, that might force some kind of behaviour change to get to those milestones, if at all it's possible," Subramanian said.

He highlighted that these incidents have caused the ecosystem to have a lot more awareness. "There is a lot more top-of-mind recall to making sure that these kinds of things don't happen."

Watch The Interview Here: