‘India’s Strong Fundamentals Draw Global Attention & Capital,’ Rocketship’s Madhu Iyer Believes

"It will take another 6-12 months before the market recovers from the ongoing funding winter," according to Madhu Shalini Iyer, Managing Partner at Silicon Valley-based venture capital firm Rocketship.vc. 

It is a Silicon Valley-based venture capital firm that had raised USD 125 million, marking the first close of its third fund in mid-2022. It has made over 20 investments in India so far and has backed startups such as NoBroker, Khatabook, Moglix, Apna, Teachmint, Quizizz, Jar and Animall. Its USD 40 million first fund was raised in 2015.

In India, Rocketship continues to see a big investment opportunity in the ‘Bharat’ wave, where startups are coming up with apps or services to help people who have been traditionally underserved.  

She strongly believes that if an entrepreneur will be able to make it to the end of this winter, without having spent much money and you're just like survived and limped, it's not great, you need to really thrive. Even now, you need to cautiously spend on growing absolute arrays. One needs to push the levers in order to grow.

The big buzz right now is all about AI. The inflection point was when ChatGPT came in. How are you looking at it? How is it shaping up in India and all across?

I am a computer scientist, a data science person, Chief Data Officer, I've been an operator. So this trend is personally close to my heart. We're seeing GenAI and predictive AI all across, started seeing that in the valley quite a bit and have seen some wonderful companies in India. We're very excited in all three realms. And if you had to ask me to pick two that I am really particularly excited about it's it's more investing in the picks and shovels and the user experience. 

We sit in the valley, but we obviously invest in India. We are seeing a lot of Gen AI, just take off in the valley. But we're also seeing some great companies in India, we're going to be watching for more. 

India as a whole, is an ecosystem that has a lot of amazing positivity. The growth has doubled from $1.7 trillion gone up to about $3.6 trillion. Now, in terms of regulatory frameworks being challenging, especially with Gen AI and crypto. I think that there's a lot of bias to action, that you have never seen a time where the regulatory environment has been actually business-friendly. Even with Gen AI, we feel that it's been a little bit behind the valley but it's catching up and how. 

You joined Rocketship at a time when actually, the startup boom was actually getting started in 2020. And since then, there have been many waves of correction in between. Tell us what are some of your observations and learnings in the last two to three years?

Yes, I joined towards the end of 2019. Absolutely, 2021 was a tremendous year in terms of just the number of unicorns that were minted and the number of funds that were global that were investing in India.

There was a huge sort of B2C consumer tech boom, great valuations for startups, a lot of rush and a lot of value creation as well. Obviously, you know, there is a lull after the storm. And that's what this is. But what I feel about this particular time, everybody knows that 2022 was, when a lot of funds, raised money and there were a lot of micro VCs that were created here, there's a lot of family offices directly invested into startups. So as a result, you have a lot of dry powder about USD 3-6 billion of dry powder sitting in the market. 

People are trying to see which startups are best, their bar is really high. There's still a lot of early-stage investing and growth startups are not getting that funded. You know, we'll have to see, but there is a huge amount of secularism that has come into startup funding, people want to be careful with valuation. 

Green shoots are Gen AI, climate and ESG-related startups, deep tech, which is sustainability and space tech, agri tech. So amazing times we are watching closely.

I just think that the fundamentals of India are so right that maybe the IPO windows open up. And the other thing that's been a problem is the exit windows have been a little sort of lull. We hope that it all corrects and the IPOs open up and we're going to be able to roll back again.

You are in Valley evaluating a lot of founders, you must have a very bird's eye view of India of what's happening. Is any one phenomenon that is working excellently in India's favour for India's growth story all across?

Look, I think one of the things that has really worked for India other than the regulatory environment, other than, you know, all of the other pieces being right, and I keep repeating the word fundamentals.

Because the growth in the GDP, the performance of the stock market, all of that fundamentals are right there. The one thing that has been phenomenal is obviously the founder quality has just improved massively. There's been much more money, you know, in terms of VC value creation. What's been outstanding is that there you're seeing great founders and great startups emerging from tier two plus cities. 

So, India has the great potential of having such a huge test case, it's a testbed, right, that you can do rapid experimentation, that is really valuable, because not too many other places where you can do experimentation and testing at such a massive scale. And India has given the opportunity for its startup community to do that, just because of its sheer size. That's, I think, spectacular.

Given the pace of India’s startup growth story, how do you look at the number of women in the entrepreneurship and investing ecosystem? 

When it comes to venture capital and private equity, there are not too many women and also, maybe angel investors. 

I just think that there is a clear gap and not just in India, this is a gap in the US as well, globally and in Europe as well. So this is a gap that's across the board. There are many ways to solve it, there need to be better networking opportunities for women, they need to be closer-knit communities, there needs to be Angel List, the equivalent of sort of a sisterhood club where folks that have money should pull in money and invest together, there's a lot of initiatives being taken. 

There is a long journey ahead, I am optimistic that at least we're talking about it, but I am sort of dismayed that there's not been enough time, there's really nothing much else to say and put a positive spin to it. Because there needs to be a lot of work that needs to be done.