India’s startup ecosystem is seeing a shift to sustainable, profitable businesses, VCs say

Venture capital (VC) funding into Indian startups has shown strong signs of recovery in 2024, with a nearly 30% year-on-year increase in fund inflows during the first nine months, compared to the same period in 2023. This resurgence suggests that the funding winter that had gripped the ecosystem is beginning to thaw, as investors are increasingly optimistic about growth opportunities in sectors like AI, fintech, deep tech, and sustainability. 

In a panel discussion at YourStory’s TechSparks 2024, Alok Goyal, Partner, Stellaris Venture Partners, Mandeep Julka, Vice President, Chiratae Ventures and Bikram Mahajan, Partner, Unicorn India Ventures highlights the current investment trends that are shaping the startup world and shares insights on how to secure funding and make the most of venture capital to grow a business successfully.

The conversation, moderated by Sandeep Sinha, Co-founder and Co-CEO, Oister Global, touched on the shift from growth-at-all-costs to a focus on profitability and sustainable business models.

Mahajan mentioned that earlier it used to be boom investing. It was “go big or go home,” quipped Mahajan.

“Today from growth at all cost, it has become “greu” investing, which is growth, retention and unit economics. And we call ourselves gold diggers which is growth orientation with long-term durability. So I think [I can see]  those shifts,” he said.

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He also added that from single product companies that entrepreneurs used to pitch, now they're actually pitching businesses. 

“Today, they have some idea about how to go to the market, how to find an early PMF (Product-market fit), or some definition in their mind. And of course, then when we invest, we help them out,” added Mahajan. 

When asked about themes or sectors that VCs are keen on, Julka, who particularly looks at fintech and consumer at Chiratae, said that vertical financing options are something she’s been interested in. 

“I'm hoping I get to do something either on the distribution side or manufacturing side, if we get a licensed player. And even on the wealth side, I think AI is making a lot of inroads. If I can see a good AI player within the wealth tech industry, I would like to focus on.” she added.

According to Goyal, the world of application software will get reimagined in the next one to two decades and so the entire application space is one he is excited about. 

Secondly, he feels there will be an amalgamation of what has classically been thought of as software businesses and services businesses. 

“I think there will be some businesses that are going to sit at the intersection of the two, and those businesses also, I'm very excited about,” he said.

Thirdly, the world of software will also be rethought. 

“My belief there is that much like the world of typewriting, where today, every human being is a typist because of a PC and a word processor, I believe that the same is going to happen to the world of programming. You, and I, believe it or not, will be software developers a decade down the line,” he said.

Mahajan looks at something where tech can solve a large complex global problem as an investable startup. 

“Among the large problems that I'm passionate about are clean energy, climate change, solving for efficient public transit or healthcare in India,” he adds.

Some of the key factors an investor looks at before investing in a team are that the founding team should know the domain well, they should know the vertical well and the technology in which they are building. 

“The founding team should know in depth about the business, about what they are planning to do? What are the unit economics of that? Will it ever become unit economic positive? Those numbers are where most of the teams that I meet get lost because they've sought through the market,” Julka elaborated.