Narayana Murthy labels investors’ approach to Indian startups as a Ponzi scheme

The Indian startup industry is going through a tough phase as the investment dried up in 2022. Narayana Murthy compared the investment model of venture capitalists to a Ponzi scheme, blaming investors and venture capitalists for the growth-at-any-cost mindset prevalent among Indian startup entrepreneurs.

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India’s startup ecosystem is rapidly evolving, offering a wealth of opportunities for entrepreneurs to disrupt industries, drive innovation, and make their mark in the global market. According to N R Narayana Murthy, a co-founder of Infosys, the venture capitalist community is responsible for promoting a culture among entrepreneurs that prioritizes pursuing growth at all costs. He compared the investment model of venture capitalists to a Ponzi scheme.

Infosys founder further elaborated that some venture capitalists prioritize top-line growth over the bottom line.

“I would hold venture capitalists responsible who propounded the theory that only the top-line is important and not the bottom-line. I think that is completely wrong. In many ways it looks like a ponzi scheme. Investors say they are in series B, then go to series C, and sell shares to others at a profit, but it is the series Z fellow who is left with a tin box. Hence, I am not a critique of the younger people but of the older people, who have to be open and honest in saying things as it is,” Murthy said, speaking at the Nasscom Technology and Leadership Forum 2023.

During a conversation with Kunal Bahl, the co-founder of Snapdeal, Murthy stated that the senior members, such as venture capitalists, advisors, and the board of directors, must educate the younger generation on the importance of accepting deferred gratification.

Entrepreneurs should prioritize long-term goals and be willing to forgo immediate rewards in the short term, which is necessary for the success and growth of the business.

Murthy claims that Infosys has always believed in making sacrifices in the short and medium terms that have resulted in much higher rewards in the long term. By implementing this strategy, the information technology company successfully expanded its operations beyond its native market India till it became a $1 billion firm.

Murthy made a comment that criticized venture capitalists at a time when the Indian startup ecosystem was facing a decrease in available funding.

Indian startup funding scenario

The VC funding in Indian startups declined 33% YoY in 2022 to $23.95 billion. Surprisingly, investors and venture capitalists severely let down the startups seeking their late-state funding.

In 2021, Indian startups experienced a surge of VC capital, with a record $35.46 billion invested in the ecosystem, creating over 40 unicorns. However, this was also a time when venture capitalists were seized with the fear of missing out (FOMO).

The funding situation has taken a sharp downturn, resulting in a significant shift from the earlier trend, and it is expected to continue for the rest of the year. Consequently, startups are adopting a more cautious approach, implementing cost-cutting measures such as job cuts, and facing challenges securing new investments.

Murthy declined to comment on other organisations when questioned about the recent delays in hiring and salary cuts affecting freshers in the IT industry, claiming that he did not have access to their data.

During the Nasscom Technology and Leadership Forum, the Infosys founder shared an example of how the company dealt with a similar situation during the dotcom bust of 2001. Infosys hired 1,500 freshers despite the economic downturn, and its senior executives and board members of Infosys took salary cuts as a measure to manage the financial impact of the crisis.

Despite the challenges posed by the market downturn, Infosys prioritized maintaining its talent pool and investing in the future, which ultimately helped the company recover and grow in the long term.

Bottom Line

Recent events have taught investors to be more mindful of their funding decisions and processes. As a result, they have slowed down the rampant funding process, taking meticulous measures for making sound startup investment decisions. Additionally, they are preparing for the market downturn due to inflation and global crisis factors. This investment slowdown may appear detrimental to startups but will strengthen the ecosystem in the long run.

Investors must likely support entrepreneurs who can add value to the startup ecosystem instead of just backing startups without a clear vision or mission. The bursting of the FOMO bubble has created opportunities for investors and stakeholders to make disciplined investment decisions in the future.


However, Narayana Murthy’s comments on the investment model of venture capitalists have sparked a debate in the Indian startup ecosystem. While some agree with his views on prioritizing the bottom line over the topline, others argue that startups need access to funding to achieve their growth objectives. Regardless of where one stands on this issue, it is clear that the conversation around sustainable and responsible investment practices will continue to be a topic of discussion in the startup community.

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