TLDR:
India’s venture capital landscape matured in 2023 with a decline in funding and deal volume, driven by global caution on risk capital and domestic challenges. Mega-rounds decreased, unicorns deferred fundraising, and small to medium deals remained resilient. Investor focus shifted to traditional sectors and emergent themes, with tech-first sectors retaining dominance. Family offices played a crucial role in providing early-stage capital. Exit activity surged, with non-IPO public market sales being the majority exit route. Despite challenges, optimism for 2024 and beyond is fueled by India’s robust fundamentals.
Article Summary:
India’s venture capital landscape experienced a year of moderation in 2023, with a decline in funding from $25.7 billion to $9.6 billion, reflecting global caution on risk capital. The country remained the second-largest destination for venture capital and growth funding in Asia-Pacific. Several shifts were observed in the deal flow, with mega-rounds decreasing significantly, and scaled start-ups deferring fundraising, resulting in a decline in the emergence of unicorns.
Tech-first sectors, such as consumer tech, fintech, and software, continued to dominate funding allocation, but there was a shift towards traditional sectors like banking, financial services, and insurance (BFSI), and emergent themes like electric mobility and generative artificial intelligence (AI). Domestic and global factors extended the funding winter, leading to increased investor expectations and vigilance.
Family offices continued to play a crucial role in providing early-stage capital, despite a decline in deal activity. Exit activity surged in 2023, with non-IPO public market sales being the majority exit route, driven by crossover funds. Investor focus shifted towards enhancing profitability and tightening governance guardrails, while start-ups focused on profitability and deep-tech innovation.
Despite the challenges faced in 2023, there is optimism for 2024 and beyond, fueled by India’s robust fundamentals, including significant consumption headroom, fiscal and monetary discipline, and expanding digital infrastructure. As the Indian venture capital landscape adapts to the new normal, investors are adjusting their strategies to capitalize on emergent themes and rebounding sectors.
