So 2023 is not going to be worse than this year?
The environment in which to build a company actually is going to be better on all dimensions except fundraising. So talent will get more affordable. There is going to be a lot less noise. Many of the start-ups competitors may actually not be around by the end of the year if we do not have high quality businesses. If customers are willing to buy your product and pay for it, it means you built something that is a must have product so it is a very good time to build.
Similarly 2023 is great time to invest because again it is a lot less competitive, valuations are much more reasonable and companies that do raise are going to have very high quality businesses.
I would say the most important thing going ahead is that 2023 is going to be the year of very high quality. Quality, quality, quality that is going to be the theme for the year.
So it is going to be quality investing as well?
Basically at the end of the day the focus is going to be on quality businesses. So what does that mean for a start-up is that if you are at seed state start-up you only should have one goal which is to get extraordinary product market fit.
If you have raised your series A your goal should be one but if you do not have extraordinary product market then you should make sure you get to that because scaling without that is not a good idea.
Second you need to get viable growth engines. If you are a later stage company you have raised the series C or D you have to make sure that you have very strong unit economics.
And if you are public you either better be profitable or you better have a serious path to profitability very very soon because one of the things we have learnt with public markets not just in India but also in the US is that public market investors want to see companies that are going to build what we call very strong economic engines.
Define high quality company?
If you are a seed stage company do you have exemplary product market fit or not. It is very simple that is only one question that matters if you are a seed stage company. If you do not have exemplary product market you should just focus only on one thing which is get to exemplary product market fit. If you have mediocre product market fit you are not going to build an enduring company. Whether it is end of 2022 all of 2023 I think even in 2024-2025 you just not only raise capital right because series A investors have no interest in funding a company that has mediocre product market fit, you should also continue to keep your team small, keep iterating, keep trying and find it right.
What is Sequoia looking for in 2023? A year ago a lot of it was Web3 I would suppose it is not the case now?
Basically look there are about four or five themes that are interesting right. India is now beyond a stage where it is about one thing, we are about many things, many sectors, many themes.
I think the most dominant theme will continue to be building software from India for the world.
So let us first try the essays right that is…
Basically we have over half a dozen AI First companies now which are being built from India or Southeast Asia for the world. So AI is one such theme that we think will gain more prominence in 2023. The second one is vertical SaaS. Vertical SaaS is where you are building software for a specific verticals. So recently our venture team, my partner Abhishek Mohan made an investment in a company called Prismforce, they are building software for the IT services industry for their internal use, for their talent management sort of needs.
So they are willing to outsource and they are willing to go to a start-up?
Story on Prismforce, yes it is very interesting. It was announced about six weeks ago I think we announced a series of investment is Prismforce, so that is an example. They are building software for the IT services industry.
And they have them already has clients signed up?
You should talk to the founders and get their story from them but that is one example. Another example is a company that we in our most recent search cohort called Attentive.ai. So they build softwares for outdoor services firms in the US. Here is an amazing thing about the US, when you have a 26 trillion dollar economy just outdoor services in the US is a 100 billion dollar industry. It has got thousands of firms that do everything from lawn mowing and so on and so forth. Now those businesses use software so they have actually built a vertical sort of software that is AI First actually that helps those companies. Those small and mid and large enterprises in outdoor services in the US, digitise their business.
There are 30 million developers, how do we make these developers more productive, I think that is going to be a perennial theme. So as I said that is the first big theme; building software from India for the world, these are three sub themes that are interesting. The second mega theme is the India consumption story. India obviously seems to be bucking the trend. We will have to see how 2023 works out but the reality is Indian consumers continue to be very vibrant. Indian businesses continue to spend and within the Indian consumption story we have a bunch of different things going on.
And the third largest economy.
No, no, not only that, Indian consumers spend two trillion dollars, by the end of the decade and that number is going to go up. We are going to add another three trillion dollars of consumption per year in India. So you can imagine how many new companies could get in. So new brands, The second big theme in consumer is vertical commerce. Today over 150 million Indians buy products online. I am not talking about digital payments, buy products on platforms like Amazon and Flipkart and
and so on. What we are now seeing is many-many different verticals emerge, in fact in our next search cohort you will see a couple of those companies that are very interesting, new verticals and new themes.
Like what kind of verticals?
I cannot tell you.
Do not tell me the names, what I mean like the kind…
Like home furnishings, it is huge-huge space.
That is already happening.
No, no, much bigger
Look at Pepperfry, we had Urban Ladder…
There is much more… still very early days. Home furnishings is a huge space. It is largely unbranded and you will see a few other spaces. Now I cannot tell you anymore because then you will know which companies I am talking about. So that is second and third would be on consumer is gaming. Gaming we think can be a very-very large market. Of course, there are some regulatory discussion going on now.
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