As we step into the new era, a wave of eager investors is set to rush in, poised to propel businesses forward. Watch for the Series A funding realm and its successors—it’s where the action is expected to ignite. Get ready for an insider’s view!
MUMBAI: With last year’s heightened interest rates and inflated startup valuations, lacking strong fundamentals, venture capitalists took a more cautious approach. However, 2024 is shaping up to be the year in which these investors re-engage, focusing their capital on early-to growth-stage companies eager to identify emerging market leaders.
As we usher in the new year, industry specialists and investors anticipate an influx of funding activity centered on Series A stages and beyond, set to gather momentum.
Currently, there’s a wealth of capital poised for the Indian market. Within the forthcoming 2-3 years, we expect to witness an injection of $15 billion in dry powder. Valuations have recalibrated by a healthy 20-30-40%, while investments remain steady,” explains Prashanth Prakash, a partner at Accel.
This recalibration heralds the revival of active deal-making. “The recalibrated valuations signify a reset to more sustainable levels. We’re seeing rounds from seed to Series A reflect this balance. It’s a trend I believe should persist. Admittedly, the need for capital injection at the growth stage is evident. As we move forward, we should see dedicated pools of funding focusing on early growth stages, a marked shift from previous capital trends catering to a different category of companies,” Prakash further adds.
Last year’s investments by private equity and venture capital funds amounted to $27.9 billion, showcasing a significant reduction of 40% from the previous year, according to data provided by Venture Intelligence, updated until December 20, 2023.
Furthermore, 2023 observed VC funds liquidating positions, enabling them to return approximately $3.5 billion to their limited partners across 79 exits. This figure slightly surpasses the $3.1 billion returned in the preceding year.
In 2024, as seasoned startups join the ranks of the publicly traded, expect to see a realignment within their ownership structure. Early supporters will likely transition out, paving the way for investors with a long-term vision. These investors could see their returns multiply, whether through pre-IPO transactions or Offer For Sale (OFS). Well-known names such as Ola Electric, FirstCry, Lenskart, Ixigo, OfBusiness, Urban Company, Oyo, and Swiggy are gearing up for their market debut in the coming year.
Pranav Pai, Managing Partner at 3one4 Capital, commented, “Given the resurgence of liquidity on a global scale and the recovery of public markets, especially in the OECD, we can expect to see a boost in private market dealings as well. Despite the consistent early-stage venture capital (VC) activities seen throughout 2023, mid to late-stage funding declined. But, with the renewed interest in Indian IPOs, these investments are poised to bounce back in 2024.”
Post-pandemic, firms that capitalized on the low-cost funds of 2021 found themselves needing to cut expenses and revamp their business strategies to flourish in a world with rising capital costs. Numerous startups cut down on marketing budgets, while others reduced their workforce. Some either closed or divested their non-essential segments, concentrating on their primary business. With a newfound emphasis on robust unit economics and profitability, growth-stage companies have emerged more appealing to investors. “The disciplined growth of various Indian late-stage startups indicates a trend of sustainable development, likely to draw in international investment,” Pai stated, reflecting on the changed outlook.
India now attracts more attention from global investors, raising the likelihood of significant financial inflows, according to industry experts.
2023 was distinguished by a period of funding consolidation, settling the exuberant pace set between late 2019 and mid-2022. As the era of zero interest rates faded, investment strategies pivoted. Investors shifted their focus away from aggressive growth policies and toward business fundamentals, sound unit economics, and profitability. Leading companies that acquired funding in the past three years refrained from further fundraising, while those lagging behind found it challenging to secure new investments, even at lower valuations, explained Karan Sharma, MD and Co-Head of Digital and Technology Investment Banking at Avendus Capital.
Sharma expressed optimism, saying, “…this year heralds the start of a promising growth stage.” India is looking at a five-year growth projection, and with plenty of uninvested funds waiting, narrowing valuation discrepancies, and overall business growth, we might witness substantial capital investments rebounding from the past subdued eighteen months.
Sharma anticipates that the upcoming years will be transformative for the tech industry, as multiple tech high-flyers are expected to take the leap into public markets, further solidifying overall confidence.
