Of new beginnings in 2023

Enterprise-tech investing in 2022 and looking ahead to 2023

Reflecting back on 2022

2022 was quite an interesting year for VC, quite a leveller compared to dizzying 2021. It has been an incredible year for Arali, which I will come to in a moment.

The market has got reset from stratospheric levels of 2021. While it has been termed as a “funding winter,” I think some meritocracy and discernment has returned to the private investing world.

The seed-stage VC ecosystem has also evolved with the times, unlike 2021, a glut of startups haven’t got funded just on the promise of something disruptive.

However, capital inflow has not dried up fully. Deal flow is as good (if not better) as ever, although valuations resets haven’t happened as much as for the later stages.

Arali 2022 in numbers

2022 was a pivotal year for Arali in many ways.

• Launch of Arali II in October
• 6 new investments in the year (across fund 1 and fund 2).
• 6 out of 13 Arali I companies raised follow-on rounds of funding in this market
• 1 portfolio company got acquired in an all-cash deal
• 25% of the portfolio companies are cash-positive
• 12 of the 14 surviving companies (11 from Fund I and 3 from F-II) are generating revenues and have at least achieved nascent PMF
• Portfolio companies are growing in revenue at anywhere between 200% to 500% CAGR
• 1 company is winding down, as they haven’t been able to validate the problem hypothesis

Key takeaways for us from 2021

What 2022 has done is to reinforce some of the principles that we have used to construct the portfolio.

• Focusing on startups building a sustainable business model (positive unit economics, ensuring clear value to customers, and being able to clearly partake some of the value) is evergreen. It works in all market situations.
• Putting fundraising and scaling before product market fit is equivalent to putting the cart before the horse.
• In enterprise/B2B tech, it takes time and resources to build a product offering and take it to market. This process cannot be rushed, which means that as seed investors, we shouldn’t be very focussed on quick mark-ups.
• There is equal opportunity in building frontier-tech solutions for industries that are early adopters of innovation as much as there is in building simple digital solutions for tech-laggard industries.
• The highest alpha is seemingly from founders who are driven by a larger goal in life to build for structural issues in the market, rather than pure wealth creation or other personal ambitions.

Our focus areas for 2023 and beyond

We aim to focus on two broad themes:

1. Build from India for the world with a predominant focus on using frontier tech to solve a hitherto unsolved enterprise problem or democratising frontier tech to specific underserved markets/segments
2. Build from India for India and other developing markets like SEA, Middle East, Africa, primarily focusing on infrastructure plays and enabling digitalisation of laggard industries or startups that help in organising industries digitally

The areas we expect to invest in would predominantly be SaaS, Automation, Developer tooling, B2B Marketplaces, Digital infrastructure plays, Sustainability, MSME enablement and Data-as-a-service.

• We expect to see a lot of action in micro-SaaS, (i.e. pure tech plays targeting the small and the mid-market segments) and B2B marketplaces (startups focussed on legacy industries with fragmented structures).
• Within the B2B segment, there is the emergence of cross-border B2B plays.
• We expect to see lot more plays in the development tool solutions as a distinct category.
• We expect typical momentum in ‘Build in India for the world’ SaaS plays, however we believe there will be emergence of action in vertical SaaS and large enterprise focussed plays (ACV’s > $300K).
• In addition, we expect to see lot more action in supply chain automation, manufacturing 4.0, sustainability/ESG-focused/enabling solutions for enterprises.
• In the FinTech world, we expect to see significant action in product offerings being built out for different B2B segments.

Our Team

We are thrilled that the Arali family is getting bigger, as we expand the team. We will have 1 Principal and 1 Associate joining the team over the next month. In addition, we are onboarding experienced operators as venture partners, who will work with us the entire spectrum of sourcing, investment evaluation, and portfolio support.

We are ready to partner ambitious entrepreneurs who are keen on re-imagining the enterprise-tech landscape. Bring it on..

Finally…a big Thank You!

We are very thankful to all of you who have supported us in this journey from quitting our corporate careers to our advisory days at seedX to the last 4 years at Arali, this journey wouldnt have been possible without your support. We have learnt more in the last 4 years that in the last 20 years of our lives, and that is saying a lot. We are very excited about the journey ahead and look forward to working with you in 2023.

Arali Ventures is a pre-seed, seed-stage VC from India, investing in entrepreneurs building enterprise-tech solutions for the world. We help shape their journeys through product-market-fit and beyond and scale the offerings to greater heights.

Keep circling back to read our perspectives on enterprise-tech, our portfolio, and seed-stage investing in India.