A reading of the trends in quarterly funding, however, showed that the ecosystem, which has been struggling with a slowdown in investments since the past 12-18 months, has remained steady.Funding in Oct-Dec 2023 and July-Sept 2023 hovered around the $2 billion range.
Investors believe the funding winter may finally be receding and that deal activity will pick up pace from the second half of the year. “Things had started moving a bit from the end of last year itself. In the seed and early stages, we have seen term sheets and follow-on rounds happening. After the elections, we should see more action in the growth and late stages,” Varun Malhotra, partner at fintech focused venture capital firm Quona Capital, told TOI.
India has already added two unicorns to its fleet four months into 2024 – Bhavish Aggarwal’s AI venture Krutrim and fintech SaaS Perfios. This is not to say that funding will be back to levels seen in 2021 when startups had raised close to $40 billion in funding. That year was an outlier. In the present environment, while investors will continue to take time to evaluate deals, especially late stage ones, those which have managed to balance growth and profitability in the past two years will get funding at the right valuations.
“Investors are cherry-picking deals. We will not go back to crazy funding and valuations. That phase has passed. Investors are looking for sustainable business models. Some of the spaces which had boomed during Covid like edtech, some segments of Web 3 for instance, are not being able to attract any investments,” said Somshubhro Pal Choudhury, partner at Bharat Innovation Fund. Investors are now exploring new areas like deeptech and AI which have more defensible moats, he added.
From $462 million in Jan, funding into startups touched over $750 million in Feb and March, data showed, thanks to a greater number of domestic investors and micro VCs supporting early stage deals. “There will be enough traction in companies which are raising their first institutional rounds like series A, B as investors will be able to come in at the right price,” said Abhishek Prasad, managing partner at Cornerstone Ventures.
Industry insiders said that growth and late stage deals are also in the works, although they are taking more time to close given the strict investor vigil. In sectors like quick commerce where investor appetite is huge, players like Zepto are understood to be negotiating new rounds. Prasad doesn’t expect many down rounds to happen unless companies are in dire need of funds. “We will also see a lot of secondary deals happen. There are lots of funds reaching end of life in several late stage companies,” he added.