In the middle of the crypto winter, Hemant Mohapatra, partner at Lightspeed, said that crypto has a habit of getting ahead because of the way crypto is designed, it’s easy to get the hockey stick growth curve at the beginning.
“Incentives are easy to give: you can create money out of code. These incentive structures make crypto very susceptible to rapid growth and rapid shrinkage. We need to be aware of that,” he adds.
Speaking about Lightspeed’s crypto investment mission, Mohapatra said the firm is focused on making access to crypto as seamless, as fast, as cheap, as scalable and as stable as possible. This task makes Lightspeed lean towards certain types of investments more than others. For example, what makes a blockchain run faster could be the core L1 (Layer 1) blockchain, could be an L2 (Layer 2) on top or even hardware technologies that make running a blockchain much faster.
The company is also interested in the developer tools team. Mohapatra believes that much of the code building, testing and scaling of the infrastructure in Web3 is where web2 software was in the 1990s. So Lightspeed is looking to invest in companies that remove the friction. On the usability layer, Lightspeed will invest in companies that make on-ramp, off-ramp, wallets and dApps (decentralized applications) easier to use.
Decrease in the fund
Furthermore, he commented on the impact of the funding slowdown on Lightspeed’s investment strategy, saying that “the firm was slower than the market last year, and now they are faster than the market because the market itself has slowed down. The bottom line is that Lightspeed’s investment pace has not changed over the the funding winter.”
However, he noted that the flow of deals has slowed down, and fewer people are making contact to raise follow-on capital. In July, Lightspeed raised $500 million for a new India/Southeast Asia fund, but has not yet begun distributing that fund. Like Lightspeed, many other VC firms have raised large funds in the past year or early this year. Although it is dry powder, startups in India are facing an intense funding crisis.
Hemant believes this trend has to do with the fact that valuations have declined significantly in recent months. “A lot of companies that are raising growth rounds at valuations that are quite north of where the business was. Meanwhile, public markets have fallen significantly, so if these private companies come back to raise again, they must have grown into their valuations, he added.
For many of the largest public market SaaS (software-as-a-service) companies, they have declined by 60 percent, and they have seen revenue multiples drop from 20-25x forward earnings to 7-10x, Mohapatra noted. Furthermore, the average price of pre-seed rounds to seed rounds has also decreased. Last year companies raised $15-20 million in seed round checks, that trend has stopped now.
In a full fund cycle, Lightspeed invests in around 30 to 40 companies and a typical distribution cycle is three years. The fund’s India portfolio includes unicorns such as Udaan, Byju’s and Sharechat, among others. Mohapatra noted that Lightspeed is a generalist firm that invests in any sector it sees to generate risk returns for its limited partners.
Published October 8, 2022
