Scaled startups that raised money in the boom period of 2020 and 2021 could come back to the market this year for more funds, driving growth in venture capital investment activity in 2024, according to a report by Bain & Company and Indian Venture and Alternate Capital Association (IVCA).
Additionally, risk-capital investors looking to widen the base of their investments could turn to more traditional businesses during the year, said India Venture Capital Report 2024, which was released on Thursday.
In 2023, growth and late-stage startups had chosen to defer fundraising, and investors had stepped off the gas pedal owing to rising interest rates, leading to the number of mega rounds, or those more than $100 million, falling to 15 from 48 in 2022.
In contrast, the number of small and medium-sized deals, or those less than $50 million, declined by about 45% to 852 from 1,501 in 2022, the report said.
As per the report, investments in India in 2023 declined to $9.6 billion from $25.7 billion in 2022.
“We’re seeing some greenshoots in investment activity, but it’s yet to go back all the way… that will continue to be the dominant theme of 2024,” said Sai Deo, partner, Bain & Company. “We expect that investment activity will pick up in 2024 over 2023. We believe we have troughed it out…a lot of deals currently under diligence will come to fruition in H2. We’ve already seen two unicorns in 2024, and we expect some of that will start improving incrementally.”
BACK TO BASICS
Deo said that while tech-focused sectors continue to rule the roost in terms of proportion they command of overall deals, investors are increasingly starting to look at traditional sectors.
“We expect to see more investments into traditional sectors in 2024. Historically, there have been several successful investments that VC firms have made. Over the last couple of years, while tech-focused investments have been fundamental…there is renewed recognition of the fact that there are good businesses in traditional sectors,” she said. “For example, offline retail, credit-focused banking, financial services and insurance (BFSI) companies could see increased interest from VCs.”
ET had reported on March 8 how tech-first venture capital firms such as Accel and Nexus Venture Partners are signing deals in the consumer and offline business segments.
In 2022-23, investors such as Elevation Capital, Accel and Peak XV Partners cut cheques for traditional businesses such as Sarvagram Fincare, Vridhi Home Finance, Brick&Bolt, Fibmold, Neo Asset Management and ApnaMart.
GREEN SHOOTS
Among emerging sectors, generative artificial intelligence (AI) saw significant momentum in funding, the report underlined, with generative AI apps attracting the lion’s share. Funding for generative AI startups surged to $250 million in 2023 from $15 million in 2022.
The electric mobility sector, too, saw more funding as increasing maturity of the ecosystem fuelled investor interest. “The ecosystem received over $600 million in funding in 2023 with original equipment manufacturers (OEMs) and mobility services attracting over 70% of the funding,” the report said.
In 2023, exit activity by investors also remained buoyant with liquidity being provided to limited partners, or sponsors of funds, gaining priority in a high interest rate environment.
The report said exits surged by almost 1.7 times to reach $6.6 billion in 2023. Crossover funds led the pack and comprised close to 65% of the total exit value.
Also, non-IPO (initial public offer) public market sales was the most used exit route, as crossover investors trimmed their positions in their publicly listed portfolio companies, the report pointed out, adding that secondary and strategic sales also increased in value, primarily driven by mega-exits in consumer tech firms like Lenskart, and Tiger Global and Accel’s sale of Flipkart shares to Walmart.
