What Are The Red Flags Startups Must Avoid? An Investor Reveals the Truth

What happens when a seasoned investment banker ditches plush corporate offices for the unpredictable but exhilarating world of startups? You get someone like Neha Malhotra, the founder and managing partner of MeritX Ventures, who is not only rewriting the rules of venture capital but also pushing for representation, sustainability, and tech-driven innovation in the Indian startup ecosystem. With a career that spans giants like Axis Bank, Deloitte, and KPMG, and an academic pedigree from the London School of Economics, Neha now sits at the powerful intersection of entrepreneurship and investment — offering not just capital but clarity, structure, and vision to early-stage ventures.

In an exclusive interaction with TICE for Inside Investor's Mind, Neha opened up about her investment thesis, the red flags she notices in startup founders, and why she believes the future of Indian startups is both diverse and tech-forward.

From Banker to Builder: A Journey Fueled by Purpose

Neha's journey into entrepreneurship wasn't born out of boredom or burnout. It was sparked by a clear market gap. While attending one of the world’s largest tech conferences, Giants Global, she realized how underserved Indian startups were by traditional financial institutions.

“The conventional financial ecosystem wasn't tuned to the needs of new-age startups. That’s where the idea for MeritX Ventures was born — to become a platform that supports tech-led transformative innovation,” she shares.

This transition was more than a career shift — it was a personal mission to democratize access to capital, especially for women-led ventures and sustainable innovations.

What Makes a Startup Worth Investing In?

At the core of MeritX Ventures lies a robust yet evolving investment thesis. With a network of over 200+ investors, the firm focuses on early-stage ventures — but with some clear prerequisites.

“We start with a cogent problem-solution context,” Neha explains. “You must be solving a problem worth solving, and you must be the right person to solve it.”

Key elements she evaluates include:

• Founder-market fit and product-market fit

• Traction (especially sustainable traction)

• Unit economics and financial hygiene

• Use of emerging technology

Her advice to founders? Ensure your fundamentals are strong before walking into a pitch room. Lack of financial hygiene or unclear projections can raise immediate red flags for seasoned investors.

The Red Flags Startups Must Avoid

Having advised and worked with numerous startups, Neha often sees a repeating pattern of mistakes that could be easily avoided. One of the biggest misconceptions founders have, she says, is treating fundraising like a test or a one-time transaction.

“Fundraising is not a pitch, it's the beginning of a relationship. Yet, many startups approach it like a templated test,” she points out.

Common pitfalls include:

• Poor financial hygiene from Day Zero

• Overemphasis on valuation without defensible metrics

• Lack of long-term vision

Neha emphasizes that valuation is both an art and a science — but it should be backed by clarity, credibility, and numbers.

Tech, AI, and the Next Big Bets

When asked which sectors are ripe for disruption, Neha lights up. Her enthusiasm for technology is not just professional — it’s deeply personal.

“We're very bullish on AI, agentic AI, health tech, insurtech, and of course, sustainability-led innovations,” she says. “In fact, one of our portfolio startups is blending sustainability with agentic AI — it’s an exciting space to watch.”

MeritX is particularly focused on tech-led ventures that are building for the next decade, not just the next funding round.

Bridging the Gender Gap in VC

Despite India's growing startup culture, gender bias is still a grim reality — one Neha has experienced firsthand.

“I’m often the only woman on an investment panel. That representation makes a direct difference,” she notes.

At MeritX Ventures, over 70% of the investor and startup network includes women in decision-making roles. For Neha, this isn’t just a diversity stat — it’s a strategy.

“Data proves that having more women investors leads to more women-led startups being funded. We need champions who actively promote gender equality — and that’s a key part of our mission,” she says.

Advice to Aspiring Entrepreneurs

In closing, Neha leaves aspiring founders with three key insights:

1. Internalize the Ambiguity: Entrepreneurship isn’t linear. It's filled with uncertainties — accept that from day one.

2. Stay Financially Disciplined: Build financial hygiene into your startup’s DNA. It’s not just for investors — it's for survival.

3. Think Long-Term: Don’t chase vanity metrics or flashy valuations. Build something meaningful and enduring.

“Entrepreneurship can be lonely, but it’s also incredibly rewarding. You’re not just building a company — you’re building your legacy.”

Neha Malhotra is more than just an investor; she is a builder of ecosystems, a catalyst for change, and a strong voice for inclusivity in India’s booming startup landscape. Through MeritX Ventures, she is making sure capital meets conscience — and ideas meet execution. For every founder looking to raise funds and make a difference, voices like Neha’s are not just inspiring, they are indispensable.