Bengaluru-based Pranav Pai is the founding partner at 3One4 Capital, an Indian venture capital firm focused on early stage investments. It’s one of the top homegrown venture investors, managing combined funds of $300 million and with a portfolio of over 70 investments including online meat delivery unicorn Licious. 

Why is the domestic share of the record capital raised by Indian startups so low?  

India has historically been a capital-starved country. It’s a strange market where it’s a top three startup ecosystem, but less than 10% of the money being made — the really spectacular private gains — is being made from Indian capital. In the US, a majority of money invested is still local money. Same with China. When you invest in innovation locally, you tend to make large returns, and reinvest — it creates new jobs, innovation, startups, and angel networks grow. It’s a very positive feedback loop that has been working for 80 years in the US. India still doesn’t have that. 

The interesting thing [however] is that startups became very valuable during the pandemic, they were able to show the country that they can step up and support people when times are tough. From food and pharmacy delivery, to entertainment and banking and insurance, everything suddenly was run by startups. We also had a record number of IPOs. It was a cultural shift, where you can order food on Zomato in the morning and buy the stock in the afternoon. It was a big moment for India and that’s changed our minds on India’s startup opportunity. 

What is your assessment of the current startup environment amid concerns of economic and funding slowdown

The Indian story in the first quarter has only been positive. Macrowise, while there is an ongoing war, and the Fed rates have tightened, the private tech market is doing well. Then why have tech companies in the public market corrected so fast? They were overvalued. Surprisingly, while there has been a big correction, Indian private tech is still reasonably in demand. The best companies are still closing rounds, and the world’s investors are still interested. Tech startups raised over $10 billion in the first three months of 2022. There may be three to four weeks of global slowdown, but it isn’t a permanent revision. While money will be available, it will be more selective.

What are some of the most overlooked aspects of India tech right now? 

The total addressable market of the paying Indian consumer has grown multifold. It’s not grown by 10%–20% but 2x–3x. More Indian consumers are willing to pay for digital products like audio entertainment, video games, health services, edtech, and more — this is happening across the board, from urban India to non-metro and small towns. There was always this India bias that there are only going to be 10 million Indians who will pay for stuff. That’s an old assumption. There are 100 million Indians paying for stuff, and the paying base has grown multifold. That means, suddenly, more startups can become $100 million revenue businesses.

What do you think are the biggest challenges facing Indian tech right now? 

For the first time, startups who are fresh IPOs will have to prove to very difficult markets that they remain great growth stories. It’s a new challenge. Will all of them be able to do it? I don’t think so. Already some are struggling.

The world is going to start tightening its belt after this [Ukraine-Russia] war. So we’re going to enter a very different global macro environment. For Indian startups, this is going to be that first real global crunch. The first batch of IT companies from India — Infosys, TCS — have been through dotcom bust and 2000. They are hardy weathered animals. But for Indian unicorns and new IPOs this is going to be the first global challenge.