Last year saw Indian startups raising funds by the billions, which accelerated the rise of a record number of unicorns and enabled the startups to expand at an unprecedented rate. Fast-forward to 2022, and we find that the situation is a different one.

A steep fall in the technology-focussed NASDAQ index (down 28% since last November) and the plummeting of public tech stocks have directly impacted the stocks of Indian startups that went public last year, such as Zomato and Paytm. This created more panic among technology investors across the world and the uncertainty in the sphere has also laid to layoffs from startups such as Cars24, Unacademy among a dozen other unicorns.

While the situation has improved somewhat in recent weeks, we should not expect it to return to 2021-levels anytime soon as the era of being rewarded for hypergrowth at any cost is nearing its end. Such was the warning of VC firm Sequoia Capital as it issued an advisory and warned the founders of its portfolio companies that they need to adapt to endure.

With loose monetary policies leading to negative interest rates, burning cash in order to fuel growth will be rendered useless as capital is becoming more expensive, and “money is no longer free.” Instead, Sequoia advised them to focus on profitability and durable growth during this “crucible moment.” Ironic, that a VC firm is saying those words.

This will not be a “V-shaped” recovery, and today’s monetary and fiscal policy tools, according to Sequoia, will force cuts in its portfolio and measures to conserve cash.

“Enterprise-value-to-revenue multiples across software have been cut in half over the last six months and now trade below the 10-year average. Growth-adjusted multiples have fallen even further and are well below the 10-year average and pushing the 10-year lows. With the macro uncertainty around inflation, interest rates, and war, investors are looking for companies that can produce near-term certainty,” the firm said in its note.

Currently, about 61% of all software, internet, and fintech companies are trading below pre-pandemic 2020 prices. Additionally, they have lost over two years of stock price appreciation even after doubling both revenue and profitability. The VC firm expects the downturn in the market to have a direct impact on supply chains, labor markets, and consumer behavior, and the recovery will be a longer one.