For the last two years, the default way in which startups were exposed to venture capital and its effects has been, in many ways, paused. We went from the ZIRP-era ‘a unicorn every three months’ norm to layoffs, company shutdowns, and down rounds—there’s been a slowdown. Venture capital funding for the first nine months of 2024 is down 7% year-on-year, according to Tracxn.

But not because of any particular shortage of capital, which is abundant. It’s just not getting invested at nearly the same rate.

Founders who had burned through their raised funds to capture market share have had to reconsider their strategies at a time when AI and LLMs are making building and scaling companies a fair bit cheaper. 

VCs have had to sit tight and think things through before signing off another cheque. 

And the biggest change—there’s a focus on being profitable.

As the year progressed, though, we have seen big fund raises return; Zepto, Rapido, Meesho being cases in point. But overall funding is nowhere near the earlier highs. 

And now, as the world of venture capital inches back to “normalcy”, is it time for some introspection? Should VCs want to be a bit more cognizant of their past mistakes in encouraging the “grow or die” mentality among founders? 

I’ll say this, VCs aren’t the most optimistic of folks—that’s the job of founders and founding teams. VCs have to hedge multiple bets simultaneously, hoping and believing that at least a few of them will result in the outsized returns that keep the lights on, and the funding flowing for other promising ideas and people.

So this week on the Two by Two podcast, when my cohost Praveen Gopal Krishnan and I sat down to discuss the role VCs play in the world of startups, and what they need to be doing differently, we roped in two people who are intimately familiar with both sides of the coin. People who have been in the shoes of a founder, and so understand the responsibilities that come with taking money from someone willing to bet on you, and the pressures of running your company. But also people who have transitioned into being full-time VCs. 

Manav Garg is the founder of Eka Software and co-founder of Together Fund.