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Future of Venture Capital in India: Key Insights and Trends for 2024

Exits surged in 2023, with a total value of $6.6 billion. This increase can be attributed to investors seeking liquidity in a high-interest-rate environment. Public market exits, primarily driven by public market sales and strategic exits.

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Shubham Gaurwal
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VC2024

TICE Creative Image | Shake Ups in India's VC Landscape

A 2024 report by Bain and Company in collaboration with the Indian Venture Capital Association (IVCA), titled "India Venture Capital Report 2024," reveals that India's venture capital (VC) landscape underwent significant shifts in 2023. The year marked a period of moderation and recalibration, with a notable decline in overall investment. Despite this, India maintained its position as the second-largest destination for VC and growth funding in the Asia-Pacific region. As we navigate through 2024, understanding the dynamics that shaped the previous year and the emerging trends that are likely to influence the Future of Venture Capital in India becomes essential. Dive into the Indian VC landscape with TICE Intelligence Team's compelling report.

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Startups Face Perfect Storm: High Rates, Inflation, Geopolitics Squeeze VC Investments

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The global economic climate in 2023 pressured Venture Capital Funding significantly. Persistently high interest rates and inflationary pressures heightened investor expectations. This economic backdrop, coupled with geopolitical uncertainties and softening global consumption, created a challenging environment for startups.

  • VC investments in India dropped nearly 65%, from $25.7 billion in 2022 to $9.6 billion in 2023.
  • Deal volume and average deal size saw a downturn. The number of deals fell approximately 45%, from 1,611 in 2022 to 880 in 2023, while the average deal size decreased by about 30%, from $16 million to $11 million.
  • The share of seed deals rose from approximately 60% to 70%, indicating a shift toward early-stage investments.

VC1

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Sectoral Shifts and Emerging Themes: Beyond the Mainstays: Investors Explore New Horizons in Indian VC

Despite the overall decline, certain sectors continued to attract significant investments. Consumer tech, fintech, and software & SaaS dominated, collectively accounting for close to 60% of total funding. However, their relative dominance decreased as investors diversified into traditional industries like BFSI and healthcare, as well as emergent domains such as electric mobility and generative AI.

  • Consumer Tech: Investments in consumer tech dropped from $9.3 billion to $2.4 billion. While sectors like edtech, gaming, and healthtech faced considerable declines, the D2C (direct-to-consumer) segment emerged as a bright spot, increasing deal volume by almost 80%. This shift underscores sustained investor confidence in India's consumption story.
  • Fintech: Fintech funding halved, dropping from $4.5 billion to $2 billion. Investors focused on viability and profitability, with the top five deals comprising nearly 70% of total funding. Regulatory changes played a significant role, with policies affecting unsecured lending and enabling unified payments interface (UPI) advancements.
  • Software & SaaS: Investments in this sector, excluding generative AI, fell from $4.1 billion to $1.2 billion. Investors demanded demonstrated performance, especially in late-stage funding. However, vertical software & SaaS showed resilience due to higher customer stickiness and lower competition.
  • Emerging Themes: Generative AI saw a dramatic increase in funding, from $15 million to nearly $250 million, driven by early signs of product-market fit. Electric mobility also remained salient, securing over $0.6 billion in funding, with OEMs and mobility services attracting the majority of investments.
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VC3

Investor Dynamics and Fundraising Trends: PE Firms Rise, Crossover Funds Retreat

In 2023, the investor landscape democratized between leading VCs and private equity (PE) firms. PE firms doubled their share of investments through participation in large deals, while Top VCs shifted focus to smaller deals under $50 million. However, the participation of crossover funds compressed by almost 90%, with major players like Tiger Global and Softbank significantly slowing their activity.

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Family offices continued to provide crucial early-stage capital despite halving their deal activity, while corporate venture capitals (CVCs) recorded their lowest activity level in over five years. Fundraising in 2023 slowed to $4 billion, with domestic VC funds leading the charge. These funds launched numerous thematic funds focused on emergent themes such as sustainability and gaming.

Exit Strategies: Startups Find Liquidity Despite Market Downturn 

Exits surged to $6.6 billion in 2023, driven by public market sales and strategic exits. Non-IPO public trades dominated, offsetting a decline in IPOs. Secondary and strategic sales also increased, with notable exits like Lenskart's sale to ADIA and Flipkart's sale to Walmart.

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VC4

A Look at India's Startup Future - Focus on Profitability and Innovation

Looking ahead to 2024, we expect the Indian Startup Ecosystem to demonstrate resilience. Despite challenges such as executive departures and market exposure trimming, startups have shown a commitment to profitability. Key sectors like B2C commerce and software & SaaS are anticipated to rebound, driven by structural tailwinds. Emerging themes such as agritech, energy transition, and India-specific AI solutions are likely to draw significant investor interest.

Global investors remain optimistic about India's long-term prospects, supported by strong macroeconomic fundamentals, fiscal discipline, and a robust digital infrastructure. As the market continues to mature, the focus will likely shift towards sustainable growth and innovation, positioning India as a key player in the global venture capital landscape.

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