VC funding into Indian startups fell 65% in 2023 but fundamentals remain strong: Report
The report by Bain & Company said despite the decline in venture capital funding in 2023, India's strong fundamentals continue to fuel optimism among investors.
Venture capital funding into Indian startups in 2023 declined by 65% but the ecosystem remains optimistic, with 2024 witnessing heightened deal activity till now given the strong fundamentals of the country, according to a report.
In its India Venture Capital Report 2024 report, Bain & Company, in collaboration with the Indian Venture and Alternate Capital Association (IVCA), said factors such as consumption headroom, fiscal and monetary discipline, geopolitical positioning, and digital infrastructure will continue to fuel optimism among investors in the long term.
According to the report, 2023 was a year of continued moderation as total VC funding stood at $9.6 billion as compared with $25.7 billion raised in 2022. It said India still retained its position as the second-largest destination for venture capital and growth funding within the Asia-Pacific region.
The ongoing funding winter environment has kept investors cautious as 2023 saw deal volumes contracting by 45% when compared with 2022 and the average deal value decreased by 30%.
Sai Deo, Partner, Bain & Company said, “In a year seemingly rife with hurdles, investors demonstrated resilience by adjusting to the evolving landscape. There was a perceptible shift in investment focus from tech-first bets to more traditional sectors underpinned by strong fundamentals—such as healthcare, retail, and financial services.
"Importantly, innovation remained a focal point for investors, despite a challenging funding environment—evident in both the surge in Generative AI investments and the robustness of deal flow in the electric mobility ecosystem,” She added.
The segments of consumer tech, fintech and software/SaaS attracted 60% of the total funding in 2023. However, mega rounds—investments exceeding $100 million—saw a decline of 70% in 2023 as compared with 2022. However, the drop in small- and medium-sized deals was lower at 45% in 2023.
The bright spots were the segment of generative AI and electric mobility. Funding into GenAI rose from $15 million in 2022 to $250 million in 2023. The electric mobility segment garnered over $600 million in 2023.
"Over the longer term, global investors will likely remain bullish on India as an investment destination with numerous promising sectors and themes primed to draw investor interest," said Sriwatsan Krishnan, Partner, Bain & Company
According to the report, exits surged by almost 1.7X to reach $6.6 billion in 2023 as investors sought to provide liquidity to their limited partners.
"The future for startups and VCs appears to prioritise long-term strategies over thematic investments, focusing on well-governed, profitable ventures generating sustainable returns, thus the ecosystem is entering an era of poised growth, akin to a high-growth curve," said Rajat Tandon, President, IVCA.
Edited by Kanishk Singh