Private equity and venture capital funding into Indian startups surged in June to its highest monthly investment volume in two years, fuelled by an increase in growth-stage deals, bringing optimism to a gloomy fundraising environment for a new generation of technology companies.
Indian startups recorded $1.6 billion in 62 private equity and venture capital deals in June, according to data from analytics firm Venture Intelligence. The last time monthly investments topped that figure was in June 2022, when investors poured $2.5 billion into 116 deals.
Of June’s total fundraising, $1.06 billion came from growth-stage deals, with quick commerce company Zepto securing a massive $665 million in a pre-IPO round, while eyewear brand Lenskart and logistics company Ecom Express raised $200 million and $172 million, respectively.
“As artificially large funding rounds go away, building public markets-driven businesses becomes more predictable. I think 30% are phenomenal businesses. This top 30% are doing well and getting a lot of attention. Zepto, for example, is the polar opposite of Dunzo,” said Karthik Reddy, co-founder and managing partner at Blume Ventures. mint.
This comes at a time when tech investors globally have slowed down their investments in new generation growth-oriented tech companies, leading to tough times for such companies in India over the past two years.
Mid 2024
Reddy added that while deals are happening among these companies, the remaining 70 percent are still struggling to gain enough confidence from investors, adversely affecting the fundraising environment.
“Forty percent is always the middle tier. It’s difficult. They are doing well but people are not confident and don’t put in more growth capital. They are artificially slowing down growth. There are a lot of companies in that tier. They are not on the brink of bankruptcy but they are not growing as much as they should be. The (last) 30% are either not worthy of valuation, not worthy of survival or are having a tough time,” Reddy said.
Therefore, this month’s increase in funding does not signal the end of the funding winter, with startups recording a 26% decline in investments so far in 2024 compared to the same period in 2023. Investments worth around $5.5 billion have flowed into Indian startups in the first six months of 2024, which is a significant drop compared to over $7.4 billion in the same period last year.
Peak XV, Accel India slow down deals
Among India’s larger investors, venture capital firms Peak XV Partners and Accel India appear to be particularly cautious, having signed just 13 and 10 deals, respectively, so far in 2024, down from an average of about 42 and 26 deals during the same period over the past three years.
Meanwhile, Bloom Ventures tops the list of most active investors with 18 deals so far, overtaking Peak XV and Accel, which have led the race for the past three years.
To be sure, investors across the board are cutting back on deals, including Bloom Ventures, which has averaged 24 deals over the past three years.
“Even when you are building your portfolio, think about what the next investor is going to want. You have to think two steps ahead. Earlier, it wasn’t such a big deal that you thought someone would take you on. Now, you know no one is going to take you on. By the time you get to Series A, you have to have unit economics and a path to profitability. That’s the change in the market,” Reddy said.
