Soonicorns Summit: India’s ‘moment to shine’ as VC funding grows, say investors

*This article is adapted from *The Economic Times

This is “India’s moment to shine” as venture capital (VC) funding in the country picks up pace, with the likes of Rapido, Ather Energy joining the unicorn club recently, participants at the ET Soonicorns Summit said on Friday.

The Summit, a startup-tech initiative by the Economic Times, organised a panel discussion to provide insights into the future prospects and potential of the Indian venture capital ecosystem.

The panel discussion titled ‘Surge in Investor Interest: Vision and Outlook for the Indian VC Ecosystem Beyond Hype and Uncertainty’ delved into the underlying factors driving investor interest, and addressed the challenges and uncertainties existing in the market.

India’s VC ecosystem faced a severe funding decline, dropping by 65% from $27.5 billion in 2022 to $9.6 billion in 2023.

Experts believe the risk has abated this year and the negative ripple effect is on a decline.

“The first wave of Indian startups has successfully completed the 10-year venture capital to IPO cycle, demonstrating their growth and viability,” said Kanika Mayar, partner, Vertex Ventures.

The VC funding in the first half of this year witnessed a sizeable 45% increase from the second half of the previous year, and the panelists saw India as an increasingly attractive market for global investors.“It was actually what has surprised me this time around is that the cycle was much shorter. There was a major shock on the capital in the private markets which was happening in the US and another macro that China suddenly became investable,” said Anand Dutta, partner, Nexus Venture Partners.

This implies that the period of growth was followed by a more rapid downturn, with data showing that combined revenue has gone up by about 35%, while the combined losses of all unicorns put together has come down by about 25%. “There will be a year where 100 billion will be deployed in India in the next decade and things will shake up again at that time, but today that is the trend,” Dutta said.

Funding for AI and deep tech startups in India stood at $8.2 million in the April-June quarter, declining by 82% year on year, as per data from Tracxn.

The panelists noted that a lack of focus by companies on foundational research and skilled labour are concerning issues for India.

“We are seeing a little less of the middleware but we are seeing fundamentally very few handful of companies in the research layer in India and that's what makes me a little worried,” said Prayank Swaroop, partner at Accel.

“I am very excited about deep tech and manufacturing, because now we are seeing companies which are doing innovation in India but challenges in terms of skilled labour needs to be addressed for future growth,” he added.

Contrary to the soft landing for the US economy, JP Morgan predicted that a recession has only been pushed back to 2025, according to an April report by ET.

“There has been a lot of migration back from the big tech in the US back to India. There are graduates who are a lot more ambitious today, and are now leaving the big tech to start their own businesses,” said Kanika Mayar.“In the long term, what is happening is that India is probably one of the only very scaled ecosystem which is growing at a very fast pace. It is an economy which is unusually digital first,” Anand Dutta added.

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