India’s top VCs are facing new hurdles as startup investment plummets

RockedBuzz
By RockedBuzz 7 Min Read

High-level enterprise capital buyers in India managing lots of of hundreds of thousands of {dollars} is tempering expectations, making bets on early-stage startups that, at greatest, they hope will return 3-5 instances their invested capital.

Several outstanding Indian buyers, together with Peak

This 12 months, nevertheless, the prevailing temper has modified. Investors are more and more warning that they are struggling to identify fund return alternatives – the newest headache on the planet’s most populous nation. (One VC with a just lately raised fund of lower than $250 million stated that investment corporations holding $500 million or extra in capital reserves face higher issue utilizing these property profitably.)

Venture capital corporations sometimes make 20 to 30 investments per fund, betting on a choose few startups that may probably generate outsized returns to offset different losses. These corporations goal to have two or three of the portfolio firms drive nearly all of a fund’s capital features. This technique of pursuing high-risk, high-reward offers is particularly frequent amongst early-stage buyers who allocate nearly all of their fund’s capital into younger startups in hopes of getting in on the subsequent massive factor early.

The glut of capital has led Indian buyers to change into significantly cautious and selective, founders and buyers stated. Companies have been scrutinizing offers on the Series A and B levels for six months now, one investment banker stated, when such offers as soon as required far much less diligence. India’s sovereign wealth fund has been evaluating an investment in agritech startup WayCool for greater than six months, based on two folks acquainted with the matter. Gaming startup Loco additionally held talks with buyers to lift about $80 million, however greater than six months later no deal has materialized.

Bessemer Venture Partners’ India group has struck only one web new deal this 12 months, based on folks acquainted with the matter. One investor famous that Bessemer is spending months and months on due diligence and sustaining a excessive stage of skepticism.

Anant Vidur Puri, accomplice at Bessemer Venture Partner, confirmed that the agency has made just one web new investment in India this 12 months, saying the fund is “roadmap targeted” as it seeks to construct a concentrated portfolio of investments of top of the range and sometimes prefers to double current helps.

“We are also stage agnostic, so we can go into Seed, Series A, B or C and look to continue to support our investments across multiple stages, in line with the concentrated portfolio strategy. Some years we do 6-7 new deals and some years we do even 0, which might depend on when we see attractive and compelling investments in the market, but on average we don’t do more than a handful of new investments each year,” he advised me in a textual content message.

Mirroring the sluggish tempo of investment in startup ecosystems globally, Indian startups secured about $7 billion in capital in 2023, down from about $25 billion in 2022, based on market intelligence platform Tracxn. to $37 billion in 2021. In reality, it is the lowest in 5 seven years, simply as Tracxn had stated 5. (Only two Indian startups – Zepto – and InCred – entered the unicorn membership this 12 months.)

Late-stage financing suffered the steepest decline, plunging greater than 73% year-over-year. Additionally, the variety of mega-rounds above $100 million totaled simply 17 for the 12 months, a 69% lower from 2021.

global vc startup investment

Top VC markets, by investment quantity in 2023. Data: PitchBook and Barclays

Some buyers have stated they are taking extra precautions as the worth of lots of India’s top startups has fallen, one thing they are saying has pressured them to rebuild their market thesis for India.

Prosus just lately minimize Byju’s valuation to lower than $3 billion. (Byju’s, which has raised greater than $5 billion to this point, was valued at $22 billion early final 12 months.) Pharmeasy, as soon as valued at $5.4 billion, just lately raised capital at a reduction by 90%. Vanguard minimize ride-hailing big Ola’s valuation by greater than 60%. Food supply big Swiggy, service provider funds platform Pine Labs and SaaS Gupshup have additionally confronted writedowns this 12 months. Google and Reliance-backed Dunzo, which has raised greater than $500 million, is struggling to make payroll, and BNPL startup ZestMoney, which has raised greater than $130 million, is shutting down.

India-focused buyers are additionally turning into more and more bearish on Southeast Asia. In current years, firms like Peak XV and Lightspeed have expanded into the area, backing many early-stage startups, a few of which have change into massive winners.

However, some massive buyers now have apprehensions, saying an excessive amount of capital is chasing too few viable offers in Southeast Asia, inflating valuations and diminishing potential returns. (In a current interview, Peak XV stated it stays very bullish in Southeast Asia.)

Investors are additionally questioning whether or not they have overestimated India’s SaaS alternatives. “Everyone underwrote product risk, companies were able to build products. No one has been able to sell/scale revenues beyond a significant point,” stated a US-based early-stage Indian investor, including that only a few firms have been in a position to faucet into American networks to promote to US firms.

Dev Khare of Lightspeed Venture Partners India She said in 2023 there have been fewer than 100 transactions for Indian enterprise software program startups from seed to progress. The market stays very targeted on seed transactions and the Series A spherical is the “choke point”.

“Hundreds of suits made in India in 2021/2022 are struggling to fit into corporate budgets due to budget squeezes and/or many are ‘me-too/light’ features,” he wrote.

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