India's Startup Ecosystem: Resilience and Recalibration in H1 2024

Been spending way too much time on Grapevine lately - absolutely loving it @Micheal_Scott! Posted the Prosus report takeaways yday - lots of you DMed asking questions. Then I saw NewsAnchor break down the entire Prosus Annual Report - great stuff. I was an Associate at one of the largest VC funds in India, so I enjoy going through new reports and summarising them - found my notes from Bain's India Venture Capital Report 2024. Thought of sharing the unedited summary that I shared with the Partners at the fund, have a bunch of these - can share more if of value to any of you here (ofc removing the confidential parts) Notes: 1/ India's maintaining its gravitational pull despite the global funding crunch. Sure, overall funding nosedived 63% to $9.6B, but we're still the #2 destination in Asia-Pacific. Might not necessarily be a crash, it's a necessary course correction. 2/ Early-stage investing is showing remarkable resilience. Seed deals now comprise 70% of all deals, up from 60%, with average check sizes holding steady at $1.4M. Smart money is quietly positioning itself for the next wave of innovation. 3/ The tech-only playbook is being rewritten. While consumer tech, fintech, and SaaS still command 60% of funding, traditional sectors like BFSI are gaining ground, with average deal sizes jumping from $8M to $15M. We're witnessing the birth of tech-enabled, not just tech-centric, growth stories. 4/ The unicorn factory has hit pause, with only 2 new billion-dollar valuations vs. 23 in 2022. Mega-rounds ($100M+) plummeted from 48 to 15. This isn't a drought; it's a return to fundamentals. The era of grow-now-profit-later is firmly behind us. 5/ Generative AI isn't just hype; it's reshaping the landscape. Funding exploded from $15M to $250M, with 80% flowing to existing companies integrating AI. India's quickly becoming a laboratory for practical AI applications, not just speculative moonshots. 6/ Electric mobility is rewiring itself. While overall funding dipped slightly to $600M+, charging infrastructure investment surged 50%. The real opportunity isn't just in vehicles; it's in building out the entire EV ecosystem. 7/ Exits are defying gravity, leaping 1.7x to $6.6B. Public market sales led the charge at 55%, even as IPOs cooled. LPs are getting liquidity, and the secondary market is proving surprisingly robust. There's still appetite for quality assets. 8/ PE is no longer just watching from the sidelines. These players doubled their share to 25% of investments, going toe-to-toe with traditional VCs. The lines between growth equity and venture capital are blurring, and it's changing the game for late-stage rounds. 9/ We're watching natural selection in real-time. Yes, 35,000+ startups shuttered and 20,000+ layoffs hit the headlines. But companies like Groww and Indifi turned profitable. This isn't a bubble bursting; it's an ecosystem strengthening its foundations. 10/ Domestic VCs are coming of age. While overall fund-raising halved to $4B, homegrown VCs led 90%+ of raises. They're not just following; they're specializing, with thematic funds like Omnivore's $150M agritech vehicle. The ecosystem is bootstrapping its own future. 11/ Regulation isn't just tightening; it's evolving. Angel Tax expanded and lending norms got stricter, but we're also seeing innovative policies like UPI for foreign travelers. India's crafting a uniquely balanced approach to fostering innovation while maintaining stability. Topics we can discuss during our standup: 1/ Can India produce global tech giants if it's primarily adopting rather than pioneering in areas like AI? How do we enable this? 2/ How will the shift towards profitability impact India's ability to foster truly disruptive innovations? Implications for us, how should we be evaluating deals differently? 3/ With domestic VCs leading the charge, how will this change India's startup narrative on the global stage? 4/ Is this maturation setting the stage for more resilient, globally competitive Indian startups, or are we risking our innovation edge? How do we look at thesis driven investing v/s fomo investing? Link to Bain's report - https://www.bain.com/insights/india-venture-capital-report-2024/ P.S. Do note that this is 6+ months old - data points mostly look diff now but sharing it anyways. Will post more as and when I get time :)

In a landmark deal, Silicon Valley powerhouse General Catalyst has acquired Venture Highway, a seed-stage investment firm with a track record of backing winners like Meesho and Mobile Premier League. The Deal: - Rare instance of consolidation in the Indian VC market - VH to be rebranded as General Catalyst India - GC plans to invest $500 million to $1 billion in India over the next three years - Acquisition driven by desire to build strong local team and tap into local LP network But the move also raises important questions. Will this trigger a wave of consolidation in the Indian VC market? Will other global firms follow suit and snap up local players to gain a foothold in the country? And how will this influx of foreign capital shape the trajectory of India's startup ecosystem? As the dust settles on this landmark deal, one thing is clear: India's startup scene is entering a new era, one where local innovation and global capital are increasingly intertwined.

Always long on India 🇮🇳 Image Credits: The Arc

As we bid farewell to the challenges of the past, let's delve into why 2024 is poised to be a game-changer for the Indian Startups! 🚀 In 2020, the world weathered the storm of COVID, followed by unprecedented quantitative easing. We then saw that in 2021 the bull run came soaring. Investors, fueled by the appetite for riskier assets led to a funding boom for startups as salaries soared. Fast forward to 2022, and the music is about to stop. The realization that the Fed would hike rates to curb inflation means that funding is about to dry up as big money will be invested away into debt/T-Bills. Though demand remained robust, the stock market felt the impact as JPow raised the interest rates. Late 2022 and 2023 saw the tech landscape experiencing layoffs, and startups facing significant headwinds. It’s a wonder if anyone raised this year. But here's the twist—2024 looks brighter. The stock markets have rebounded to all-time highs, signaling that things may be on the rise. Despite geopolitical tensions in Ukraine and Iraq, the macro outlook for India shines bright. For Indian Startups? VC Funding is still here to stay. So keep your heads down and keep building. From what I am hearing, it is set to make a roaring comeback. There is now significant rationality in the funding ecosystem leading to realistic valuations. However, this revival will come with a plot twist. Newer companies, fueled by fresh funding, are set to rise, while most of the lofty valuations of those who raised in 2021 are about to crash and burn. So buckle up folks. Let’s see where it takes us. What do you think? 🤔

Hey Everyone, I'm Vaibhav Vardhan, Co-Founder & CEO at Inc42. We are India’s #1 startup media & intelligence platform that informs, educates and empowers startup leaders & operators through our incisive reporting and industry-leading executive programs like FounderX. I'd love to chat with you folks about my journey in building Inc42, why we’ve built FounderX and more! Ask Me Anything :) I’ll be back at 5PM and answer all your questions!

Seeing the S&P500 witness a spectacular "short" rally before popping, and then it becoming decidedly clear that even if the rate hikes were unlikely it was still going to be a long time before rates come down. Becoming much more clearer that the impact on various asset classes and securities is going to be muted for the time to be. Unless interest rates come down, I can't possibly imagine that the VC funding will pick up again, their LPs can't put in more money unless interest rates come down. Cheap capital fuels the VC ecosystem, if capital isn't cheap then allocation in VC Funds goes down to adjust to a newly adjusted risk appetite of investors.

willl try my best to be honest, ask me anything

Heard from most people that there’s a lot of crunch. Wondering if anyone at their companies feels like their startup is growing despite the slowdown. Razorpay, CRED, and are seeing tighter regulations and downrounds. The food delivery companies have all gone through their down rounds and readjustment of expectations. Even SaaS most founders have a poor revenue/employee ratio and the india story is still yet to play out for the newer bets. Just yesterday Oslash announced it’s shutting down its app. Any green shoots ☘️? And if there are maybe it’s a good thread for folks to try and hire.