2023 investor Rethink: Seismic Shift Shaping India’s Funding Landscape
This analysis by TICE.NEWS explores the key themes that shaped 2023 and continue influencing 2024:
What’s driving the investor makeover?
- Democratisation Investments: In 2023, a convergence between Venture Capital and Private Equity (PE), strategies was observed. PEs, who traditionally focused on bigger deals, doubled the volume of their investments by participating in fewer high-value transactions. Examples are ADIA’s investment of 350 million dollars in Lenskart and Temasek backing Ola Electric for 500 million dollars. This strategic shift reflects a focus on securing a significant influence and potential return in marquee deals.
India’s Startup Ecosystem: Local VCs are on the Rise as Global Players Retrench
- VCs Target Growth at the Early Stages: In contrast, leading VCs re-calibrated their focus to smaller deals(under $50 million). This pivot indicates a strategic goal to nurture high-growth early-stage ventures and an adaptation to increased competition. By focusing on smaller investments, the VCs could be positioning themselves to capitalize on the next wave disruptive startup.
- Crossover Funds – A Dramatic Decline The activity and investment of crossover funds, which blurred the lines between VC & PE in late stage investments, saw a dramatic 90% compression. Investment giants such as Tiger Global, and Softbanksignificantly decreased deal-making. This retrenchment is attributed to the volatility of the market and a strategic reevaluation in risk tolerance.
The Silent Partners: India’s Future is Still Supported by Family Offices
- CVCs and Family Offices: Cautious yet Present: The family offices maintained their presence, but reduced their deal activity by half (2022-2023). Despite the decrease, they remain important early-stage investors. MEMG’s Family Office investments in Bluestone ($20 millions) and FirstCry are two of the most important deals. This long-term involvement highlights their strategic role as they help to foster nascent companies during economic turmoil.
Are CVCs out? Why Corporate Venture Capital Could Be Taking A Backseat
- Corporate Venture Capital Activity at a Minimum: CVCs have seen their lowest deal activity for over five years (83 transactions in 2023), representing only 9% of VC deals (down 12% from 2022). This reflects the cautious approach taken by corporations to navigate uncertain market conditions.
Fund-Raising Slowdown? New domestic funds signal long-term confidence
- Fundraising Slowdown and Domestic Leaders: Fundraising in 2023 was markedly slower, with total funds raised of $4 Billion compared to 8 Billion in 2022. This can be attributed both to a cautious capital allocation and the accumulation of dry powder from previous record-breaking fundraising. Interestingly, domestic VC funds led the fundraising efforts and raised over 90% of total capital.
Thematic Investment Takes Off: Sustainability and Gaming Lead the Charge
- Thematic funds and Fresh Capital: Domestic Venture Capitalists launched numerous thematic fund targeting sectors such as sustainability and gaming. (e.g. Omnivore’s $150 million sustainability Fund and Lumikai’s $25 million gaming Fund). This thematic approach shows strategic foresight to address evolving market needs. Maiden funds made up a quarter of total fundraising, showing investor confidence in India.
Key Startup Investment Themes for 2023-24
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Dominant sectors: Consumer Tech and Fintech, as well as Software & SaaS, attracted close 60% of funding.
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The investment landscape of 2023 was marked by strategic recalibrations across investor types. These trends are a roadmap to understanding the changing dynamics of investors’ behaviour and fund allocation as the market evolves. This knowledge will help both startups and investors navigate the constantly changing landscape of investment in 2024.