Bala Deshpande: A Candid Perspective on India’s Ever-Evolving Start-up Landscape

In the world of venture capital, Bala Deshpande is known for her incisive and candid conversations. With nearly two decades of experience, she has held close to 40 board positions in various industries, making her a seasoned investor with a wealth of insights. Bala Deshpande’s investment journey began in 2001 with ICICI Ventures, and in 2008, she joined the American venture fund, NEA. Later, in 2018, Deshpande co-founded MegaDelta, a mid-market growth fund with $300 million in assets under management.

MegaDelta: Born Like IVF

MegaDelta’s inception is a unique story. In 2018, NEA decided to sell its India portfolio, and Deshpande, with the support of global investors, acquired the entire portfolio, laying the foundation for MegaDelta. As a venture fund, MegaDelta specializes in late Series A or Series B investments, typically ranging between $15 million and $25 million. Their focus is on companies that are at the point of acceleration, primarily in the Series B stage, where the strength of the business model is put to the test. Deshpande believes that this is the most challenging phase for Indian companies, where growth often stalls after the initial phase.

The venture capital landscape in India has transformed significantly over the past decade. One of the most significant shifts has been the behaviour of capital. A glut of capital has poured into the Indian start up ecosystem, leading to a notable increase in start-up valuations. The phenomenon of capital “creating its own unicorn” has become prevalent, where large amounts of capital are invested in start-ups based on future potential rather than current revenue. Entrepreneurs are now readily taking in $100 million investments, even if their revenue is relatively low. For investors with substantial capital, allocating $100 million is just a small portion of their overall fund.

Deshpande emphasizes that capital now seeks to discover valuation based on the strength of the entrepreneur, the uniqueness of the business story, first-mover advantage, and the potential for a long-term, sticky consumer base. The valuation is not solely determined by current revenue but incorporates elements of scarcity, future potential, and the hope of even higher valuations in the future.

The valuation-performance mismatch has raised concerns, especially when loss-making companies go public and face market scepticism. Deshpande offers perspective by highlighting that when investors allow loss-making companies to go public, knowing that profitability may be several years away, and traditional quarterly analysis might not be helpful. The focus, instead, is on the long-term vision and potential profitability down the road. Deshpande underscores the importance of founder DNA in determining the success of an investment. She points out that some founders have a “self-destruct button” due to a lack of understanding of the entrepreneurial journey. The story of a founder who left the task of monetizing the business model to the CFO serves as an illustrative anecdote. Deshpande believes that entrepreneurship is a continuous learning process and that entrepreneurs must choose the right business model and sector carefully.

For founders, the primary challenge is increased competition. In today’s market, numerous businesses are pursuing similar dreams, intensifying the competitive landscape. Moreover, when capital rushes to invest in a particular sector and a few entrepreneurs, it creates challenges for funds like MegaDelta. The solution, Deshpande suggests, lies in maintaining a well-calibrated risk-return approach. She notes that the only time when returns are elusive is when there is either no growth or a significant regulatory impact.

While India’s start up ecosystem has experienced remarkable changes, the future holds the promise of even more exciting entrepreneurial stories. For Bala Deshpande and MegaDelta, the path forward is guided by the understanding that strategic and selective investments, combined with a comprehensive understanding of the business landscape, will lead to success in the ever-evolving world of venture capital.