According to a report by GlobalData, Indian startups witnessed a 65.8% drop in funding in terms of value between January and November 2023. They raised $6.9 billion across 1,013 venture capital (VC) funding deals in the past 11 months this year. Last year, the startups had raised $20.2 billion in the same period.
Also read: 2023 in review: For Indian tech startups, an unrelenting funding winter
However, experts believe that despite these challenges, the Indian startup ecosystem remains resilient, supported by government initiatives and a renewed focus on sustainable, long-term success.
The government has introduced several initiatives to support startups including Fund of Funds for Startups, Startup India Seed Fund Scheme, and Credit Guarantee Scheme for Startups.
“We remain optimistic about the future. The combination of favorable government policies, India’s robust and expanding economy, and ongoing infrastructure developments positions the startup landscape for a brighter and more resilient future,” Aniruddha Sen, Co-founder, Kenko Health told Livemint.
Sen further added, “The unwavering commitment of governments to support startups through regulatory reforms, tax incentives, and funding programs is expected to create an environment conducive to entrepreneurial growth. Such supportive measures can significantly impact the startup funding landscape. The relentless pursuit of technological advancements and innovation remains a driving force. Startups at the forefront of transformative technologies, such as AI, biotech, and clean energy, are likely to attract substantial funding due to their potential to reshape industries.”
Current funding winter scenario
The funding winter in India at present reflects a challenging landscape for startups, with Venture Capital (VC) funding hitting a six-year low in November. Several factors contributed to this funding winter, including cautious investors slowing down on closing rounds and a considerable year-on-year decline. Late-stage funding rounds have notably disappeared in the last two months, continuing a trend from earlier in the year.
“While the current funding winter poses challenges for startups, there is cautious optimism about a potential rebound in the coming year, contingent on various factors influencing investor sentiment and economic conditions,” Sen added.
Also read: 2023 in markets: A cheerful finish to a volatile year
However, the startups which survived the last 18 months will continue to flourish in the upcoming year, experts said.
“The Indian startup ecosystem is maturing like fine wine. Its multiple stakeholders (founders, investors & facilitators), regulators and the Government’s policy push for startups is in an iterative mode. And that, in my view, will allow for the top 5% of startups to continue to win. This means the startups that are fit enough to weather the last 18 months, will continue to flourish in 2024. Those startups that will be rigid in implementation will find growth hard to achieve as 2024 will bring its own challenges and a lack of agility is a recipe for a startup to become deadpooled,” Shahan Sud, Senior Investment Manager at JAFCO Asia told Livemint.
Emergence of Zombie VCs
Experts further believe that due to the current dry powder availability in the startup ecosystem, there are severe chances of the emergence of Zombie VCs (Venture Capital). Zombie VC is an informal term to describe any venture capital firm that is still in operation but lacks the necessary capital to invest in new startups.
“We anticipate the emergence of Zombie VCs. Faced with the challenge of delivering extraordinary returns, these firms are expected to prioritise their existing portfolios before eventually winding down. Identifying these VC Zombies may not be immediate, requiring a few years before their inactivity becomes apparent. This evolution underscores the maturation and recalibration of the startup ecosystem as we navigate the dynamics of 2024,” Sateesh Andra, Managing Director – Endiya Partners told Livemint.
Adding that the funding in startups is further expected to remain slow, Andra added, “In 2024, despite an abundance of dry powder availability (exceeding $15 billion), the startup funding pace is expected to remain slower—a new normal we must embrace. However, amid these challenges, exceptional founders and businesses can leverage the current environment to build successful companies.”
Also read: Public market exits by PE/VC firms see sharp uptick in 2023
IPO surge in startup landscape
Experts further said the startup landscape will be dynamically shaped by two major forces: a commitment to pragmatic innovation and a significant surge in tech startups heading towards Initial Public Offerings (IPOs).
“This indicates a crucial phase where startups are making the transition from private to public, aiming to secure broader investment and enhance their market presence. In 2024, the IPO landscape is uniquely characterised by a preference for mid-sized offerings, a strategic choice that reflects startups’ desire to balance financial expansion with sustainable growth,” Rohit Bhayana, Co-CEO and Founder, Oister Global told Livemint.
Shahan Sud of JAFCO Asia further added that the number of Tech IPOs is likely to rise next year. “In my view, Q1 FY25 onwards we will see more deals getting inked in the early-stage investments space in India and by H2 2024 we will see increased momentum in the Tech IPOs and that will unlock the later stage pre-IPO stage market too,” he said.
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Published: 27 Dec 2023, 10:58 PM IST