Investors on Why This is an Ideal Time for Growth Investments Companies in the growth stage have already built a consumer base and validated their value proposition. As a result, investors' returns can be more guaranteed.

Meesho decreased staff by 15%, or 251, on Friday as the Indian social commerce unicorn cut expenses to improve its financial standing and deal with "economic reality." The startup's previous wave of layoffs, which took place a year ago, resulted in the elimination of about 150 positions.

The Bengaluru-based Series-F funded company, which has the backing of Fidelity, Prosus, SoftBank, Sequoia India and Meta, claimed in a statement that it is hoping to "work with a leaner organisational structure to achieve sustained profitability."

The fact that late-stage funded companies frequently have high valuations and high burn rates, which might make it challenging to attain profitability, is one obstacle. In addition, investors who are searching for a sustainable business plan and a clear route to profitability may be more critical of them. As a result, some late-stage funded businesses can have trouble surviving if they can't turn a profit or show that they're making headway in that direction.

"The case of Meesho highlights the challenges that some late-stage funded companies may face. The company reportedly struggled with high burn rates and a lack of profitability. The job cuts were seen as a necessary step to reduce costs and improve the company's financial position," said angel investor Prateek Toshniwal, who has personally invested in 28 companies and co-invested in over 75 others.

Not just Meesho, but several other Indian businesses with growth-stage investment have drastically reduced their spending to hasten the transition to profitability. In more than 200 places, Zomato has terminated operations and laid off employees. Unacademy, a startup in edtech, has also let go of almost 600 workers.

Venture capital firms like Chiratae Ventures have advised all the companies that they have to turn profitable in the next 12 to 18 months. As per its Founder and Vice-Chairman TC Meenakshi Sundaram, "We have placed a strong emphasis on margins and the road to profit. Companies that are profitable or are very close to profitability are able to raise funds in the market."

Due to the fact that businesses are placing a priority on profitability and are amenable to reasonable values in growth rounds, Chiratae believes that the market conditions are favourable for growth investments at the moment.

With its newly announced first growth fund, "Chiratae Growth Fund (CGF-I)," the firm hopes to support this by building a portfolio of 10–15 companies with ticket sizes ranging from USD 5–15 million.

Other VCs have also jumped on board to make late-stage investments, in addition to Chiratae. For instance, in January of this year, the US-based investment firm B Capital concluded its third venture growth fund and related companion funds, Growth Fund III, at a total corpus of USD 2.1 billion. The fund will invest between $40 million and $50 million in startups operating in the enterprisetech, fintech, healthtech, SaaS, and cybersecurity sectors in the US and Asia, including India. A USD 129 million fund, which will invest in Series B and Series C stage SaaS firms based in India, was closed by venture capital company Iron Pillar in April. Z3Partners, a venture capital firm, announced the final closure of its fund in January 2023 at INR 550 crore (roughly USD 69 million), with plans to invest between INR 50 crore and INR 80 crore in 8-10 early and growth-stage tech startups operating in the SaaS, fintech, e-commerce, B2B commerce, agritech, big data, consumer tech, and tech-enabled segments. Major private equity firm Multiples Alternate Asset Management, or Multiples PE, also announced the first closing of its fourth fund this month, raising USD 640 million to increase investments in domestic businesses.

But why is this time right?

Toshniwal asserted that the market's abundance of capital has made it possible for growth-stage businesses to raise substantial sums of money on more favourable terms. As a result, growth-stage companies are able to grow their operations, make investments in new product development, and scale their businesses more quickly.

Secondly, Toshniwal emphasised the growing trend of businesses delaying going public for extended periods of time, which has increased the need for growth-stage financing. "This has created more opportunities for investors to participate in the growth of promising companies and benefit from potential future returns," he noted.

Lastly, the COVID-19 pandemic, Toshniwal claimed, has accelerated the adoption of digital technologies, creating new opportunities for growth-stage companies that operate in sectors such as e-commerce, digital healthcare, and online education. "Investor interest in companies that are well-positioned to profit from these trends has risen as a result of this," he stated.

Growth-stage investing, according to Madhu Lunawat, CIO of India Inflection Opportunity Fund, is one of the most profitable stages of the investment process since it allows investors to capitalise on a company's potential while accepting the least amount of risk. She noted that growing companies already have a customer base and have proven their value offer. As a result, returns for investors may be more secure.

But if we compare the 30 mega deals in Q1 2022, the ecosystem only saw nine mega deals in Q1 2023 that raised more than $100 million. In addition, no new business joined the unicorn club in Q1 2023, compared to 14 unicorns in Q1 2022. In April, PhonePe and DMI were able to raise between $100 million and more. No other startup managed to raise this amount in the previous month. Let's wait and see whether this situation changes any time soon.