2022 Recap & Forecast 2023

Matrix Team
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 2022 was a year of unprecedented change and disruption, with the world having to adjust to a new normal. As we look back at the past year, it is important to take stock of what happened and reflect on what we have learned. At the same time, it is also important to look ahead and anticipate what the coming year may bring, Tune – in.

Rajat:    

Hi, everyone. Welcome to Matrix Moments. This one is a special episode today; this has become a little bit of a ritual for us at the end of the year where we look back at the year gone by and talk about what we think next year is likely to be. Lots of gratitude today, that's what we feel all of us, we have Avnish, Tarun, Rajinder, Vikram, all of us here with us. 

Let me set the context a little bit, it’s been a little bit of a rough year for the entire global economy, tech industry, venture capital industry. But we’ve been lucky that we’ve had decently less though year, so lots of gratitude for that. But maybe to kick things off, Tarun, why don’t we start with you. Tell us a little bit about how your overall global macro environment has been and how do you feel about that.

Tarun:   

Yeah. Firstly, thank you, Rajat. And again, it’s great to be here. So, I would say it’s been a rollercoaster of a year. I think if I remember correctly when we did this exactly a year ago I think all of us were of the view that things are way too heated up. We all felt that this is going to break at some point and obviously nobody knew when and what it was. But 12 months out as it turns out obviously things did kind of, I would say melt down at least in the public markets, private markets are yet to catch up with that.

But eventually it was inflation and the war which really kind of came together and over time what we’ve seen is two things, right, one is multiples across sectors have rerated. It started with just the multiples themselves rerating because of inflation in interest rates and with relation to the cash flow and so we saw a stiff correction in the multiples because investor’s view of what discounted cash flow would has changed. 

The second is that earnings division started coming in which was the second cycle sort of corrections in evaluations. And large companies and now you see the data including the likes of Facebook and Google and Amazon and everybody is foreseeing a tough 12 to 24 months ahead and everybody is starting to cut – started with hiring freezes which is the easiest way to start but actually many of them are now cutting team sizes because they’re expecting that spend or consumer spend will come down. 

And so, I think it’s hard to say whether how far we are from the bottom but we’re clearly in the midst of it as we speak. India market on the other hand obviously has been a very, very different story. We’re at an all-time high today from what I understand and so I think we’ll talk a little bit more about the Indian economy and why it’s different from what’s happening in the world, but it has been a rollercoaster of a year and we’ll cover some of those things. 

Vikram

Let me just pick up on that. So like Tarun said in the overall world view India is still okay and we keep wondering why and we have to explain to some of our fellow investors across the world on what we’re drinking, and they wonder what we’re drinking. And if I had to summarize one word for how India has fared through the year it’s resilience. And the resilience of India has been tested and now been answered. 

And underlying all of this is that the India growth model was a 777 model for us which is 7 percent growth, 7 percent interest rate, 7 percent inflation. And so, the high interest rates and inflation were already baked into the growth model for India and so India was built on that growth model. So the economic activity in India continues to pick up and continues to grow versus the rest of the world which is suffering from the inflation and therefore the interest rate shocks.

For the India startup ecosystem, I think it’s been a sobering year. People have now asked the question how do you build these companies in low liquidity environments and therefore all of our companies are answering the question on what is their sustainable valuation through cycle. 2021 was actually very good for most of our companies across the ecosystem, they raised a lot of money. Therefore, they have a long runway and now I think well on their way to answer the questions around does this model profitability and sustainability. So, we’re very hopeful that our companies are going to come out of this period looking very good because they’re ready to answer those questions. 

Avnish

We’re the one true beacon and you don’t want to over index on the media because they swing like this but from cover of elephants on the street and to now the digital economy and the one growth we are the fastest growing large economy in the world now. I think on this digitization piece sometimes I think we all discovered it when we were putting together some of these presentations. 

What has happened over the last five years is not appreciated enough between UPI literally being the best payment system in the world bar none to overall digitization of the economy, Aadhar, Jam architecture, so Covid was just icing on top. So to me super excited, we should all count our blessings here. I think the companies have to recalibrate to the new reality, but it is the ones that went through a hyper growth phase that are now coming back to normal. But overall digital economy is rocking, so I'm actually super excited. 

Tarun:   

I just want to pick up on one thing that Avi said because I don’t think it’s well understood outside of sort of the investment ecosystem. I think all of us saw this chart of US e-commerce where it went from high teams’ penetration to 30 percent plus and then everyone thought that's where it’s going to stay. It actually has fallen quite a bit and it’s now back to the earlier trajectory which obviously begs the question will we and have we seen a similar version of that happening in India as well and at least so far the country has been open 12 months plus, so far we haven’t seen that happen. 

And I think the way I put it together is we started, and we got into Covid firstly with all the drivers and the digital drivers that Avnish mentioned but also at a country level across most sectors we were still at a low single digit penetration. And we had a very large swathe of users that came online, started spending more time online but most importantly started transacting online. And that behavior; and after experiencing the convenience of that, that behavior change has thankfully for all of us here has not reversed.

And no public company that's listed in India in the tech space has reported a down quarter, they continue to grow off their larger base. We’re seeing it in our own portfolio where companies operating data while we can all talk about valuations and how they’re far ahead and absolutely in several cases they’re 12 to maybe 24 months, sometimes 36 months ahead of where the fundamentals are. But I think what gives all of us hope and optimism is the fact that we’ve never in our lives at least in my career so far haven’t seen the kind of scale that we’re seeing in some of these companies, the growth of that scale and the quality of the revenue that these companies are adding. 

And if that holds hopefully these companies with all the capital that they’ve raised in the last year or two hopefully they should be able to tide through this tough time. 

Rajat:    

Yeah. So, talking about IPOs last time we had said that it was a seminal year for India tech system IPOs finally happened. We’ve said in the last year’s episode that India will see 15-20 more tech IPOs coming. It’s been a mixed bag, right. 

Avnish

Rajat, you're not supposed to remind us what we said last year especially if it was wrong. 

Rajat:    

No, we got most of it right.

Vikram

Just talk about the predictions where we were right. 

Rajat:    

But it’s been a mixed bag, right. 

Rajinder:     

No, you're right. I think last year 2021 was a year where the India digital IPO market truly came alive and all the founders who took their companies public credit to them I think they’ve had a very, very challenging first year in public markets but I think all of them have built outstanding companies that will stand the test of time much, much wiser men than me, Sanjeev Bikhchandani who is one of the godfathers of Indian internet.

Rajat:    

OGs.

Rajinder:     

One of the OGs. He actually said that there would be 35-40 profitable Indian internet companies that will go public. I actually 1000 percent agree with him, I think we have a very strong pipeline of Indian internet companies that will go public over the next few years. The truth is India can't disassociate from the global markets when it comes to liquidity, right, and so to get these companies into public markets I think the global liquidity environment will have to change a little bit. 

Hopefully that will happen in 2023, my own personal belief is that it will likely by the second half, I don’t know what the trigger will be, but I expect it. And I think the domestic appetite for high growth, high quality companies will go up. The fact is that there’s 15-20 billion dollars of SIP flow every year into mutual funds in India. And historically the Indian market has always been value investing focused, but I know that there will be reallocation of capital towards high growth assets. And so, I fully expect that there will be a large pool of domestic capital that will support these high quality companies that are profitable or close to being profitable which will go public and the digital IPO market is here to stay. 

I think the fact that there are so many companies that have gone public the fact that Indian companies that have gone public have corrected but have corrected far less than what the global equivalents have corrected is all a indicator that the future is optimistic. And we’ve had a tough year, we fortunately had one of our companies go public, Vikram, congrats. I think Five Star, Pathy sir, Ranga sir, you know, thank you for the opportunity, but I think 2023 with many other companies is likely to be much better. And I'm not sure exactly what the trigger will be but I'm pretty confident on the domestic appetite for high quality internet companies going public. 

Rajat:    

I know even in this market companies are going public, these last few months or few weeks actually has been fantastic from an India IPO perspective. Vikram, so I'm sure -- 

Vikram

I think one of our companies, Five Star went public earlier this month. Firstly, thank you to the Five Star team, Pathy, Ranga, Srikant for actually taking the company public, delivering a fantastic return for us in particular so thank you for that. honestly though the moment that I remember from the IPO is what the team said about us in the press release and Pathy particularly saying that we stuck with him through thick and thin and -- 

Avnish

They’re celebrating the IPO there by the way. 

Vikram

That comment of us sticking with him through thick and thin is what makes the journey worth it for us. Picking up on Rajinder’s point on IPOs I think they’ve been time shifted. India is one of the few markets where the primary markets are open, it’s a podcast for another day on how you value companies fairly and so on such that you get through this IPO market. The one thing I will say is that the domestic investor both institutional as well as the HNI retail has become important for these IPOs to become successful. And so, founders do need to understand and retool that they were pitching to for investors and now the domestic investor is much more important in India which I think long term is a great thing for the India markets which are now being driven by domestic investors. 

Avnish

Now I want to pick up on that and advise, part advise, Vikram, maybe you can add to it, to prospective IPO companies, I think historically we’ve been very dependent on this foreign capital and I would argue at least what we hear from the domestics is that they were insulted that a bunch of overall in the market that there was a lot of effort on selling the foreign investors but not enough on educating the domestic investors. And I think there’s a line maybe you told me that you may need the foreigners to go to actually list but you need the domestics to hold the stock. 

Vikram

Like I said I think we are going to do a podcast on some of our learnings from this particular IPO, but I would say the number one is for the domestic investors. One, they’re like us, we’re all Indians and they’re relationship oriented. Second, they want to get educated around this market they want to be part of this digital ecosystem, they see it all around them. And so, spend the time to make them aware of your business model and what’s interesting about it.

And third they’re looking for sustainable business models which now today the whole world is. So that's an equalizer. 

Tarun:   

I’ll just say one more thing on the point of the IPOs and sort of the environment, see I think we have to also take a step back and say that the reality is that public market investors don’t care about your last private round, right, and that's the reality whether we like it or not. And I think two or three things have happened, one is while a lot of companies went IPO last year, I think the markets in hindsight have been fairly discerning, right. There are companies which are down 70-80 percent which in hindsight those IPOs were probably not priced correctly. But if you see a Nykaa despite the fall from its peak from IPO price I was just looking today it’s down 5 percent. 

And so in the context of what’s happening in the world where companies have lost 70-80 percent of their market value there aren’t, I mean closer home Five Star is up what, now 8-10 percent from IPO. So I think if the company is pricing it right I think the best companies still will have the opportunity to list and you’ve seen that. 

Rajat:    

So, Tarun, talking about resilience last year we’d also said and this one we did get right that Indian companies, private companies, will not see a lot of down rounds etc through 2022 and that's largely played out. So what did these companies do differently or what did the environment – talk a little bit about how that happened and perhaps even how do you think 2023 will play out.

Tarun:   

So down rounds didn’t happen but not because of the reason we thought they wouldn’t, the down rounds didn’t happen because companies raised multiple rounds of financing in 2020 and 2021. So I think most good companies which were on a solid growth trajectory including in our portfolio we saw companies raise 2, 3, 4 rounds of financing. I would say the good news and the positive in this whole thing is one is as a founder if you're getting a large amount of money at low dilution should you be taking it, yes, you should assuming you know what to do with it. 

I think the good thing that's happened is that in India a lot of these corrections maybe about six months’ time shifted from what happened in the US and I think a lot of us, a lot of the smartest founders started raising alarm bells fairly quickly in India. And so what’s happened is a lot of these companies have bulked up, they’ve got the capital in the bank and they already had significant runway. Many of them have actually further gone back and reduced their cost structures on a bottom up basis which means that I think most good companies and most good founders have done the right thing already, they have three years of runway in some cases much longer than that as well.

And what have they done, they’ve basically cut unprofitable channels, they’ve cut experiments that had a very long gestation period, they’ve in some cases cut unprofitable cities or some version of that. Thankfully we haven’t seen companies that needed to cut to the bone, right, and that's the right thing to do because eventually these companies also need to grow. 

So, in my mind honestly the answer we will know in 2023 second half maybe even in early 2024 when companies will need to go out and raise capital. I think that's when the real jury will be out in terms of like were these the right bets to have made. I don’t think we will realize now. I think how these companies sort of execute over the next 12-18 months with these lower budgets, with marketing bone cut are they still able to grow, are they still able to follow the business plan I think we’ll know in the next 12 months. 

Avnish

So, I'm going to make a politically incorrect statement, I think down rounds are irrelevant if you’re listed you're up one day down another day, it’s up round one day, down round another day. I think founders need to focus on business models, if they have to take a down round in order to get the business model right doesn’t matter. People like us will also take it on the chin, I'm actually a bit wary that there’s too much focus on valuation and not on business model.

And I think the founders also make that mistake, I’ve been reading, you’ve been reading in the US markets lot of structured rounds are happening so you can notionally keep, and you can explain what a structured round is but it’s fake valuation, it’s irrelevant. So, to me companies need to focus on business models, last five years of era of the value of a company is the present value of its discounted cash flow. 

When the interest rates were zero that was a lot, and it was in the terminal value. When the interest rates are high it’s in the present value so they need to get to profitable business models and even in our portfolio I encourage the founders saying market price has changed, you cannot change the market, you can only say yes or no or be resourceful get infinite runway but even there not enough is spoken about business model and too much about valuations and even runway where what really matters is, is this business really working and will it work 3, 4, 5 years from now. 

Rajat:    

Thank you for that. Just rounding up the global or India macro story I think last year we’d also said that M&As will become meaningful in 2022 and that's actually played out as well even for our portfolio, we ended up selling a bunch of our interesting companies got acquired by larger companies. Great again gratitude for investors for the acquirers and to our founders who’ve continued to find a new home and build sustainably. Our portfolio companies also acquired, Razorpay ended up acquiring Ezetap and again the growth juggernaut just continues in some of those companies. 

Avnish

CreditVidya.

Rajat:    

CreditVidya came out today as well so again lucky to be in some of those companies and gratitude for the founders. Moving to sector specific stuff and maybe we can start with Fintech, Vikram. 

Avnish

Connecting the previous point on burn, runway and M&A if I was a founder I would seriously – so M&A is success. And I think increasingly I'm seeing that founders are getting smarter about it. Most of them are so young, they’re in their 30s, they’ve got so many innings left. Why keep churning at something you know a founder knows in their heart whether it is a scalable profitable. We talk about 0-1, 1-10, 10-infinity, a founder knows whether they’re on the 10-infinity journey or not. 

I think this is the best ever environment I have seen having been doing this for 15 years where you can actually book not a home run but a base hit or multiple base hits in the baseball parlance and get the fuel to do it again. And I strongly advocate that don’t keep waiting, waiting, waiting, maybe tilting at the windmills and M&A is a real exit I think you wanted to -- 

Rajinder:     

Yeah, I think also we’ve always said that the India M&A market will come alive, and I think this is the first year where it started coming alive and I again think this is here to stay and the rationale is very simple, I think there are lots of very high quality founders, very high quality businesses but not every company will find its future in public markets. And for companies that have that aspiration but for whom there is one part of the portfolio that needs to get built out through an M&A 2022 and 2023 are likely like outstanding years to be looking at some of these high quality companies and it’s credit to all the founders in the ecosystem for treating M&A as a viable path for both selling and buying like selling obviously there were opportunities in the past but even for acquirers they’re thinking of M&A as strategic versus the traditional way of looking at M&A which is this is something we should pick up at bottom price like now it’s real. 

Vikram

So just picking up on what Avnish said often the conversation on founders selling their companies is equated to selling out and therefore that stands in the way. So, I would say for the founders who are perhaps in acquisition conversations two things, one, you create a valuable exit for all your stakeholders most notably your employees getting them that home. Second, empirically and Rajinder’s crunched all of this data most valuable companies are created by founders on their second, third innings. 

On their second startup, third startup we funded a bunch of them, and we were privileged to be in business with a lot of those founders and that next phase of value creation is just bigger and larger. Sorry, I want to go back to your Fintech question, I don’t know where you parked it.

Rajat:    

No, so just moving to the sector specific looking back at what happened Fintech had probably one of the most rollercoaster years, right. Started off with a big bang, I know Razor raised a large round, Cred raised a large round but then the regulator stepped in so talk us through what happened. Is it a good thing for the sector or not?

Vikram

So, it’s absolutely a good thing. The way I would characterize it is that it was a year of growing up and the regulator held the ecosystem accountable rightfully so because the companies have become very large and are part of the system. So, it’s absolutely the right thing because it means that all our companies have become big enough and moved the financial services ecosystem. 

Now I would from our perspective Fintech is an evergreen space, I think we’re just still early on the penetration journey of providing great financial services to every Indian and I think Fintech is a large part of the journey, incumbents would do their part so for us we will continue actively investing in Fintech. One advice which I’ve kept saying is the regulator is actually a pretty curious regulator who’s actually done the right thing in helping this ecosystem get here so if you have a innovative business model just go talk to them first because the regulator has made one thing clear, there is only one door which is the front door, there is no back door. 

Avnish

And regulation is a feature not a bug in this. 

Vikram

Absolutely.

Avnish

I want to pick up one piece on this evergreen and the overall just stepping back little bit of a tangent next 7-10 years if you believe Rajinder’s projections India will add 3-3.5 trillion of GDP which is equal to our first 75 years of existence and let that sink in for a minute. Within digital probably generate 1.5-2 trillion of value, where is it going to come from?. So, there are many evergreen sectors, and we often discuss that there are sectors that are deep and wide. 

And what does that mean, Fintech is deep and wide, B2B is deep and wide, consumer is deep and wide. So basically, if you own a sliver of a customer that's a very valuable company. And that is more a GTM than a PMF when something is so deep and wide you need to focus on that customer and what is that go to market for that customer. So, we have and will have multiple investments in wealth tech, multiple investments in credit, multiple investments in insurance, like a bunch of these things, right. 

Same thing in consumer, how many consumer brands do we have, are they starting to overlap, yes, but was their target audience different when they started, yes. So, I just think it’s very exciting and there are almost every sector to me going forward is an evergreen sector for some time. 

Rajat:    

So, Tarun, talking about consumer you’ve been investing in that space for a decade now. We’d said last year that offline will be a big part of consumer and we know it’s played out in Edtech, consumer brands, all of them have just ended up going offline. I guess the shopper is just buying everywhere, right, online, offline, the shopper is the same. So, talk us through a little bit of what played out and how you think the next year is going to be?

Tarun:   

So, I think I know there’s a lot of gloom and doom generally about consumer and the general narrative is that it’s hard to build scalable profitable, profitable being the underscored word. 

Rajat:    

Mama Earth is hugely profitable. 

Tarun:   

This is businesses in consumer, you know what I'm saying, consumer I'm not just talking about D2C brands, I'm talking about all B2C consumer tech. In my mind I think there’s never been a better time and I’ll tell you why. I think version one of all the consumer businesses that were built in India were basically models that were aped from the West. Some of those had relevance in India but when a model is already discovered, and multiple people are trying to execute on it by definitely economics sort of get depressed and we’ve seen that happening. 

I think version 2 is what I'm really excited by which is a lot more made in India, made for India models. By definition those should have less competition at least less global competition but finally the market is here like we said, and we’ve seen it in companies closer home like Country Delight, a very unique business model, very made in India, made for India company, knock on wood, continues to execute really well. And there are several other such examples, right, we always said we’re an ABCD nation, right, now recently we met an astrology startup that is profitable bootstrapped scaling really well and at reasonable scale. 

And I think we’ll continue to find several such made in India, made for India opportunity. So, I think that's one, I think second is consumer brands going global. We’ve always spoken about 10-infinity for our companies and when I look at some of these brands, I think Mama Earth you mentioned I know they’re doing something outside India, some of our portfolio companies are starting to think about doing something outside India. I think the opportunity to actually build brands in India, test the market here, build the market here but also then take it to relevant geographies which are adjacent I think that opportunity is a big opportunity which lot of brands are sort of looking at. 

And I think third is what you said, right, in my mind it’s less online or offline it’s all about go where the consumer is. And the consumer isn’t thinking am I buying this digitally or am I buying this offline. For them it’s like listen, I like this product, I'm going to buy it wherever it’s most convenient for me. And so, we’ve always spoken omnichannel, but today there’s newer themes like influencers where essentially wherever the consumer’s attention is that's eventually where commerce will follow and whether that's online, whether that's offline, whether it’s through influencer channels I think all these themes are exciting themes and you know some of these we’ve not announced but several of these things we’ll continue to play with.

Rajat:    

Actually, the other big thing that played out was this advent of e-com enablers in a big way in our portfolio outside as well where -- 

Tarun:   

You should talk about Gokwik in that.

Rajat:    

Yeah, Gokwik’s off to a fantastic start, they today work with I guess pretty much all major brands, major D2C brands and even to some traditional brands of the country where it’s just all of these companies are at some level struggling with giving an Amazon like e-commerce experience at least some of them. And these e-com enablers are helping them provide a same level of customer experience so that it’s again the same thing, the customer is shopping on Amazon, customer is shopping on the D2C brand website, they want the same experience and that's where I think these e-com enablers have played a big role in the last year and will continue doing so in the years to come. 

Avnish

Please note every time we speak of good companies’ fireworks start. So it’s all rigged, thank you Garima, Well done. 

Rajat:    

So last thing on sectors. EV big year. So, Bala, over to you, talk us through how there’s a revolution that’s in the making.

Rajinder:     

No, no, I think Avnish and Tarun should add I think EV is a sector which honestly it’s just core to nation building like I can't think of a sector that is more important when you think 10-20 years forward whether it’s related to energy transformation, whether it’s related to autonomous technologies, future of mobility like all of these themes and we’re privileged to have been educated in this through the founders that we work with so big thank you to Bhavish, and the entire Ola team and many other founders through whom we’ve learnt.

But it’s a sector that I think is just beginning, I think it’s hardly what, maybe 4-5 percent penetrated on two wheelers and not even 1 percent penetrated on 4 wheelers and fast forward 10 years this is going to at least at a very minimum be 25-30 percent EV. And what that does for consumers, what that does for the environment, what that does top-down government. The number of business models that will change both in the digital world as well as in the traditional like if you think of auto comps and how that ecosystem is going to change. 

India has always had a strength in this industry, we have the opportunity to again influence how this plays out globally. I'm incredibly excited, I think we’re privileged to be in business with great founders, but we would love to make many, many more investments in the next few years and I think top down the government incentives for the sector are only a trigger for all of this. 

Avnish

It’s not to give a plug for the government but giving a plug for the government. You know, the amount in subsidies and incentives in these PLIs it’s just transformational. And for an equity investor as a venture capitalist where a lot of these are capital intensive sectors it’s not a traditional venture capital investment but thanks to the government which might give hundreds of millions to maybe billions of dollars per company in incentives it becomes very viable so kudos to that. 

Zooming out for maybe I think climate tech in general and this is again part of the how the country has evolved. We’re focusing on there’s a lot of company creation, lot of stuff happening, unclear how much of it is investable but it’s very exciting to see now in the last three, four years actually five years some models which we believe are globally not just competitive ahead of the whole world. 

Country Delight, OfBusiness, like you can't find these businesses somewhere else and in others which are cutting edge everywhere else we’re also at the cutting edge. So, it’s just super exciting. 

Rajat:    

Yeah, so that's wrapping up the sector lookback. Last thing on looking back at 2022 is Matrix. So, we’ve had a pretty active year, I think we’ve made what 15-odd investments this year more so than we did last year, much more so in last year. Part of it is I don’t know it was foresight or we were just lucky that we weren’t as active last year but again --

Avnish

When you get lucky you say it’s foresight, no. It’s actually the opposite, we have to be grateful. But I’ll let Vikram and Rajinder -- 

Rajat:    

And I guess across sectors we’ve done consumer internet, we’ve done SaaS, we’ve done Fintech, we’ve done a little bit of Web 3. So, across the board. 

Vikram

We’re very excited about the 2022 portfolio and it wasn't the most easiest environment for founders so we truly believe the founders who startup in these environments are real founders. They’re chasing obsessively a pain point or a problem that they’re very passionate about and so we’re super excited about partnering with those founders on their journey and these kinds of years where it’s been tough environment for capitalizing have always been great years for investment and some of the biggest startups come out of those years. 

Rajat:    

So, moving on to next year, Avi, to you, what will happen to the overall global environment, when do we see the boom market coming back?

Avnish

First part I don’t know, second part is relatively easier. Look, there’s a bubble every few years. I'm focused on or would like to advice all the founders to be ready to catch the next bubble which will be ‘24-’25. I think India’s growth – ’22 was the first year you started hearing of India breaking out but it’s too early, the data is too early. So, you have to put quarter after quarter and year after year on that for it to become as hot and sexy as China was at one time with capital flows.

And we’re going to enter another bubble, that's the time founders should capitalize on going public, they should capitalize actually largely on going public, I'm not going to say raise large rounds because I think what matters businesses and capital efficiency is really. What’s going to happen over the next six months look somehow having lived through multiple crashes this feels too easy. On Wall Street, you know, I worked there two years, there’s a saying called blood on the street.

In GFC you felt, the global financial crisis, I know sadly people who had to give up their homes, that's blood on the street. Dotcom bubble was blood on the street. So, lot of the – just read yesterday or day before this liquidity pumping up is at multiple levels. Interest rates being down but also printing a lot of money and injecting it. That's been going on for like 12-13 years. It can be very, very painful when you have to take that, I don’t even know what the number is but it’s in the trillions of dollars which is what is called the fed balance sheet. And it’s supposed to deleverage and it’s deleveraging at $90 billion a month or $95 billion or something like that, that's 30 months of pain. 

So, the problem is all of this is known to all the smart people so therefore it is something that we don’t know that I feel might trigger. But I can also make the opposite argument that some of these, it’s called either a price correction or a time correction, we’re clearly in a time correction. For the last 8-9 months it’s been flattish, right, or whatever up and down.

So personal opinion I think we’re going to see a massive price correction maybe 20, 30, 40 percent but no idea why. Tarun mentioned that next year’s earnings are going to decline but that also all the smart people know. So, if everything is known it has to be something that is unknown that will come and hit us, what that is I’ve no idea. But do I instinctively feel that – let me just put it out there. 

Let’s say tomorrow this is the bottom; tomorrow markets go up 20-30 percent. All behaviors will go back to what it was a year ago and that doesn’t sustain. So, I do believe that there’s more pain left. But India will continue to differentiate itself. IPOs will be tough, primary markets will be tough, but India will continue to differentiate itself with growth.

Vikram

I’ll just add on, just India I think the core sectors and everything to do with the core sectors in the GDP will actually thrive. I mean we’ve seen this with OfBusiness, which just continues to execute because the Indian economy in the core sectors is actually just doing really well. So whether its agri, there are real supply chains around steel and manufacturing with the PLI incentives kicking in and we see that tech can actually play a big role in these sectors actually being able to accelerate growth. And therefore, some of the venture back companies will play a big role even in the core sectors. 

Rajinder:     

I’d like to add on that which is every cycle generally turns on the back of innovation and we’re actually blessed in our world where the ecosystem we’re part of is built on the back of that. And so just the fact that there are so many first-time internet users that have come into the fold in the last few years. The number of users who will transact for the first few times in the next few years, all of that productivity announcement, all of that innovation India is relatively better placed and that's the hope. 

Rajat:    

And, Tarun, what about early stage, where do you think that's headed?

Tarun:   

So, listen, early stage has always typically been less strongly correlated with what happens in these markets. I think there was a period for some time in the last 12 months where things had really kind of slowed down. We’re seeing it in the investments we’re making, we’re seeing it in the market around us. I think early stage my sense is will continue to remain buoyant because it’s also much longer time horizon that one is playing for. I think the pain that Avi was talking about is going to be felt more in the growth and later stage kind of markets and in the public markets obviously and there things will actually get worse before they get better. 

Avnish

The pricing in early stage has corrected, this is the first time we’ve seen. 

Tarun:   

So the pricing has corrected, there is much more I think rational behavior across the board. I think those crazy triple digit valuations that seed series they’re no longer sort of part of our course. We’re actually seeing it going back to the teams where it should be. 

Rajat:    

I guess the other fallout of all the meltdown that's happened is reverse brain drain has started to happen in a big way. I know a bunch of people who are looking to move back for a variety of different reasons so shameless plug if one of you who is listening is looking to come back, please do, ping us, I'm sure there is something interesting we can find to do together. And it’s just the impact on talent while at one stage it’s adversity for someone but there’s an opportunity as well at the same time. 

So, moving to sector specific stuff, so Vikram, SaaS, big year for SaaS again coming up?

Vikram

So, 2023 I think we’re super excited about this applied AI trendline. We’ve made a bunch of investments around that trendline even this year with Murf. We have another seed stage investment in employee workflows being impacted by applied AI so I think we’re just going to follow through on that trendline. Pranay who leads a lot of our SaaS work is going to put something out this month which is in Jan and look out for that.

But the small net of that is when you take any workflow in your organization or any consumer workflow, I think each of those applied AI has a role to play. It might be an incumbent like notion which is actually reinventing how you work on your documents, or it can be a new player which is reimagining service desk and employee workflows. So, I think applied AI is going to cut across everything. 

Avnish

You're sounding like an evangelist, and I remember listening to crypto guys who sounded very similar. Why is this any different?

Vikram

Well, it’s different because the utility is unquestionable. So, there’s it’s an existing use case, people already are using a product for it and you're making the product far, far better and improving productivity in some ways. In most cases it’s you're essentially substituting another product and the revenue is moving to you. So, it’s a lot more real. 

Avnish

And the computer has caught up, the processing power. And just to be clear we’re not negative on crypto, but we all saw what happened in 2021 so we’re focused on real utility use cases and actually planning to be a steady investor in the space.

Rajat:    

Tarun, consumer tech plan for or what’s in store in 2023.

Tarun:   

So, I think more of the same, I think the search to find profitable scalable models continues and like I mentioned earlier I think personally very excited by version 2 which is hopefully more made in India, made for India models. I think we will continue to play in stuff where somebody is building something which will have India relevance as well in terms of global models. But I think where the real money is going to get made is finding a founder who has – we’ve spoken about founder market fit in another podcast. But finding a founder who just has an unfair advantage, has a nuanced insight, and is building for that where those companies actually have great relevance and hopefully very little competition. 

Rajat:    

No, I think some of the new verticals that we’ve been spending time in like for example Home or others, pets I think is an interesting one. ’23 will see some of these companies building in those areas will also start breaking out. So that's exciting and we’ll continue to look for new verticals.

Avnish

We just met this C2M company, we’ve been talking about the C2M trend for three years, four years but now it seems like each piece of that is so digitized that it’s actually possible. 

Rajat:    

And we’re seeing C2M in jewelry, we’re seeing C2M in fashion of course, footwear. So C2M is consumer to manufacturing. So, you look at trends which a consumer is looking at not just buying and work backwards on designs that you want to sell to consumers from there and integrate all the way back to the manufacturer. So very rapid design to manufacturing cycles and design the sales cycles actually which turns the equation of first off like fashion on its head where most companies that have struggled in fashion globally have had tough times managing their inventory. But C2M model allows the inventories to be very, very tiny so we’ll see some of that play out in ’23 as well. 

So, moving on to Matrix and maybe Avi to you what’s in store in ’23 for Matrix?

Avnish

So we’re at this offsite, you know that there are I don’t know, you guys were putting up the numbers like 30 new people have joined in the last year. So we’re exiting the year with serious momentum on org. And I want to call out in investment firms org tends to be confused with investment teams. I think we have the strongest operating team in the country whether it’s in human capital, whether it’s in marketing, thank you Garima, whether it is in finance.

So, we have also had, we have discussed the 0-1, 1-10, 10 to infinity journey, we have domain experts that have joined in the last few months. So very excited, I would say 2021 was the aberration much as we enjoyed all the mark ups and all that. 2022 in an environment where things blew up, we’ve actually been a little bit contra, 2021 we were slow, 2022 I would say we’re 60, 70, 80 percent of normal pace. Maybe world blows up over the next six months but if this is the pace I think it should be more of it.

Second, just experienced founders, you know that we pride ourselves on it. That doesn’t mean we also love to invest. We invest in all kinds of founders but there is a flywheel working for us with the experienced guy’s Anurag, Jiten, and there are so many to name, Amit, Revant and Sandeep of Dezerv, so many. And more of them are coming out so that is what is most exciting. For somebody to come out at this time they may not like the valuation, and we tell them that just focus on valuation don’t worry about the valuation but somebody who is coming out now you don’t have to question their conviction.

Google, Facebook, Uber, Apple also turned around, all were during downturns. So, what’s there for Matrix I think it’s coming together and with gratitude as well as not to jinx it and with God’s grace I think it’s coming together. We’re not looking to go crazy, but we would like to have a thoughtful flywheel which works and hopefully this environment lasts for some time. 

Rajat:    

So, on that note we’ll bring this to a close. So, thank you Avi, Tarun, Rajinder and Vikram. And it’s been a fabulous conversation looking forward to a fantastic ’23.

Vikram

Happy New Year to everyone and wishing you a great 2023.

Rajinder:     

Thank you, everyone. Happy New Year.

Tarun:   

Thank you.

Avnish

Thank you. Happy New Year.

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