It’s a fabulous time to build strong businesses, Sequoia India director says

The global macroeconomic conditions have led to a drop in startup funding within the past few months. At the Tech in Asia Conference 2022, Shailendra Singh, managing director of Sequoia Capital India & Southeast Asia, counterintuitively said that it’s “a great time to build” a really strong business.

Sequoia Capital India & Southeast Asia managing director Shailendra Singh / Photo credit: Tech in Asia

Noting the increasing number of internet users and secular growth in GDP in Southeast Asia, Singh explained that there is less inflationary pressure on companies in this region relative to Europe and the US. With the looming threat of a global recession in place – the effects of which are particularly felt in the West – it’s surprising to note that there is little negative impact felt in Southeast Asia and India.

“We recently concluded a portfolio review and we all looked at each other at the end and said, where’s the slowdown? There is a slowdown in funding, but company performance and demand-side drivers are pretty strong,” he shared.

Singh noted the funding downturn is a “blessing” for startups that intend to build strong businesses for the next five to 15 years. Getting rid of distractions, the current environment forces founders to focus on building positive unit economics instead of relying on raising capital.

Slow and steady wins the race

Singh pointed out that in the startup world, the idea of “blitzscaling” or rapid growth is emphasized as a measure of success despite not being sustainable. Good performance is often measured in month-on-month or annual growth metrics, which doesn’t guarantee or indicate long-term triumph as it remains to be a transient state for startups. In other words, a company can only grow so much.

“What matters is, did you do the foundational things to be able to sustain that growth rate in the following year? And did you do competitively smart things that you’re to increase your odds of long-term compounding?” he said.

In 10 years, companies that had consistent compounding growth tend to outperform companies that had periods of blitzscaling, he noted.

He also explained that once companies have cash in the bank, they have a psychological need to spend it on expansion. This creates a high burn rate, which firms may not be prepared to handle in the long term.

For founders struggling to raise capital during this time, Singh urged them to consider whether they have a high net promoter score, repeats, pricing, and go-to-market. He stressed that a startup with a high-quality product that has good customer engagement will not find it difficult to secure funding.

“We have never found that somebody is building a great business and can’t access capital in my entire career,” he added.

See also: Recession Run: Sequoia’s $850m plan during a downturn

Tuning out the noise

Singh said that founders will receive different advice from everyone – from seed-round investors to late-stage financiers, as well as from co-founders across different backgrounds – because their vantage points in life are different. This is why good decision-making is an essential trait for entrepreneurs, as they should be determining how fast they want to grow by themselves instead of letting VCs decide for them.

VCs back founders who have a point of view of how a company should be built and are willing to withstand the pressure from all and noise from all kinds of people, he advised.