SUMMARY
The VC/PE investments in India declined from $42 Bn in 2021 to $10 Bn in 2023, according to Inc42 data.
The definition of fundamentals and what was valued at the early stage has completely changed over the past 24 months
2024 is going to be a proving year for the Indian VC ecosystem. With the whirlwind of the previous years behind us, there is a lot to look forward to
Weathering the storm. Perhaps, this will be the right way to describe the last two years for the Indian startup ecosystem. The VC/PE investments in India declined from $42 Bn in 2021 to $25 Bn in 2022. This number further plummeted to $10 Bn in 2023, according to Inc42 data.
The money dried up, the mighty unicorns fell and the startup ecosystem was left in disarray. Founders and Investors were left scratching their heads, ‘What did we do wrong’?
The definition of fundamentals and what was valued at the early stage has completely changed over the past 24 months. The aggregation of GTVs and GMVs shone a light on the exceptional execution capabilities of the founders of our ecosystem, but this growth was coupled with negative unit economics propped up by private capital.
The turn of profitability was a mirage in the desert, always around the corner but never to be found. The cornucopia of drying capital markets, global instability in various geographies and uncertain interest rates created a vacuum in global deployment in India. This evolving landscape has created a new normal in the Indian Venture Capital space.
The Fundamentals
The ability of a company to stand independently on its balance sheet without the need for periodic injections of private capital, which was overlooked with the frenzy of capital of yesteryear, has come to the forefront.
Valuing a company for positive unit economics and frugal go-to-market strategies is a key trend for VC investments in 2024. Though often overused, sustainability will remain a key tenant for investments in 2024.
Sustenance in the face of difficult investor markets and troubled macroeconomic conditions has separated the cream from the fluff in this cycle downturn. Sustainable business models that can create shareholder value over the long term will reign supreme.
The Governance
Startups have been continuously chastised in the public eye, with any and every lapse in governance hyper-focused on with founders and investors critiqued for their every step. But there isn’t smoke without fire and Indian startups have had such quick rises over the past years that governance usually took a back seat.
Investors in 2024 are building robust governance and information reporting systems that create transparency between stakeholders and allow for quick remedies for lapses. Emphasising board-driven organisations that are insulated from the individuality of their people has become an important facet.
The Impact
With a myriad of problems facing our world today, from climate change to microplastics, water instability to antibiotic resistance, it has become imperative for investors to look at the impact in their investments.
The host of problems requires extremely complex solutions with an in-depth collaboration between government bodies, startups, and investors. Impact in the past, has been standalone and disconnected with business fundamentals.
This trend has changed in 2024, with business and impact going hand-in-hand. Businesses that can create value for their shareholders and withstand macro-shocks are the ones that will be able to generate impact indefinitely.
The percentage of startups caring about their impact and bringing it up to the forefront of their business has gone up, which is a positive sign of the ecosystem maturing.
2024 is going to be a proving year for the Indian VC ecosystem. With the whirlwind of the previous years behind us, there is a lot to look forward to. As we judiciously put our best foot forward, these times will remain a stark reminder to stay true to course and build sustainable companies that will build value for their stakeholders.
The ecosystem is going through a phase of evolution and gaining maturity which will propel India to be one of the world’s leading investment hubs.
