As green shoots begin to appear in startup investing after two years of downturn, a shift is underway in how founders and dealmakers look at potential transactions, multiple entrepreneurs, venture capitalists and investment bankers told ET. Capital pools have diversified, with large global, crossover and hedge funds mostly staying away from cutting cheques. On the other hand, domestic firms and family offices — such as those run by Zerodha cofounder Nikhil Kamath and Manipal Group chairman Ranjan Pai — along with other investors not part of the previous funding cycles, have become active and relevant. These include public market investors such as ValueQuest, which recently backed Wow Momos; ace investor Ashish Kacholia’s Lucky Securities, which pumped Rs 70-80 crore into homegrown burger chain Jumboking; and Singularity Ventures, run by Yash Kela and CaratLane’s Mithun Sacheti, which has funded a clutch of startups including skincare brand Mcaffeine and battery material maker Lohum.
Expediting deals. Bankers said investors that typically focused on public markets are now finding value in venture-backed private assets and contributing to the growing domestic pool of capital. The latter have been closing bigger deals over the last year. Sovereign wealth funds such as Abu Dhabi Investment Authority and Temasek, as well as private equity firms including TPG Growth and ChrysCapital, invested in the likes of Lenskart, Shadowfax, Xpressbees, and Kreditbee. This coincides with a significant spurt in growth- to late-stage funding, most of it in secondary deals. Online audio streaming platform PocketFM, education financing platform Avanse, e-commerce player Meesho, wearable devices maker Ultrahuman and others have closed new rounds.
From the other side. Founders are also increasingly turning to investment banks, as against during the funding boom, when entrepreneurs would close deals independently. “Companies that haven’t seen a round in the past few years are seeing $20-30 million primary rounds, and those closer to an IPO (public listing) or an M&A, are seeing secondary interest,” said The Rainmaker Group’s Chanchani. Banker-led deals have increased substantially also because assistance is needed for secondary processes and the pools of capital are seeing rapid churn, he said.
According to Tracxn data, funding in Indian startups marked a positive trend over the last three months. Deals worth $449 million were struck in January, followed by $799 million in February and $747 million in March. However, year-on-year, the total $2 billion raised in the quarter is still around 38% lower than the $3.3-billion deals announced during January-March 2023.
What next? Though the overall funding scenario remains subdued, industry executives are of the view that the pipeline could swell as startups grow into valuations ascribed to them during the boom of 2021 and 2022. “Founders have realised… ‘We are not being rewarded for growth only. So, we’ll grow a little slowly but let’s make unit economics efficient’,” said Vinod Murali, managing partner at venture debt fund Alteria Capital. “We have a lot of companies at breakeven; some have even turned profitable… they have grown 30-40%, maybe not 200%, therefore growing into their valuations.” The overall investment landscape is a gentler slope from the 2021 highs as founder expectations on valuations moderate and investors look to write smaller cheques.
