TLDR:
- PE funds are becoming more popular among start-ups in India
- Many new-age companies are opting for private equity over venture capital
In recent times, there has been a shift in the funding landscape for start-ups in India. Rather than following the traditional route of raising capital from venture capitalists (VCs), a growing number of new-age companies with a digital presence are turning towards private equity (PE) players and debt-based financiers. This shift can be attributed to various factors, including a prolonged VC funding winter and the desire for profitability over cash burn.
According to data from Tracxn, 321 companies in India have raised equity funding from PEs between 2021 and the present, none of which received capital from VCs. This trend indicates a significant change in the financing preferences of start-ups, with companies like Koskii, Amber, Arcatron, and Bloom Hotels opting for the PE route to fund their growth.
PE investors are showing interest in direct-to-consumer (D2C) brands, fintech, and healthcare delivery businesses, particularly those with strong unit economics and cash generation capabilities. Additionally, the PE route offers founders the opportunity to maintain a higher stake in their companies and potentially increase their wealth creation compared to traditional VC funding.
While there is a growing interest in PE money among start-ups, VC funding remains a popular choice for many companies, especially those in tech-heavy industries or software development. Ultimately, the decision to pursue PE or VC funding depends on the company’s growth trajectory, revenue model, and long-term objectives.
