85% dip in top VC funding in ’23; hopes up for ’24

Investments by major foreign venture capital (VC) firms, including Tiger Global, Peak XV Partners, Accel, and Softbank, in India witnessed a major decline of over 85 per cent in 2023, amid the startup ecosystem facing a funding winter. Despite the investment downturn, foreign investors remain optimistic about the Indian market and are poised to ramp up investment activity this year.

Over the past two years, prominent global VC firms have also divested from some of their investments.

Peak XV Partners (formerly Sequoia India), a prominent investor in India, saw an 87 per cent year-on-year (Y-O-Y) decrease in investments, amounting to $197.5 million across 23 deals in 2023, down from $1.5 billion across 38 deals in 2022, according to Tracxn — a market intelligence platform.

Similarly, early-stage investor Accel’s investments in India across various stages plummeted by 84 per cent Y-O-Y to $197.5 million across 18 deals last year, from roughly $1.2 billion across 50 deals in 2022.

Accel has notable investments in companies like Flipkart, Swiggy, Freshworks, and Zetwerk, among others.

Tiger Global, headquartered in the US, reduced its investments by around 71 per cent Y-O-Y to $869.9 million across just five deals in 2023, down from $3 billion across 45 deals in 2022.

Japanese investment giant Softbank, which has taken bets in startups like Oyo, Delhivery, and Paytm, saw a drastic decline, making no investments in India in 2023 compared to $445 million across two deals in 2022, according to Tracxn data.

However, the decline in investments isn’t exclusive to large VCS, with overall foreign investments in the country seeing a substantial 66 per cent Y-O-Y drop to $7.7 billion in 2023, down from $23 billion the previous year.

Global macroeconomic challenges and increased investor scrutiny, prompted by corporate governance lapses among several startups, contributed to the decline in deal volumes during the past year.

But, investors note that the country’s startup ecosystem is undergoing a market recalibration following a surge in VC investments in 2021, during which startups raised a record $42 billion in funding. Industry estimates suggest that startups are expected to raise between $10 billion and $12 billion in 2024.

Accel plans to invest in up to 25 Indian startups this year and may introduce an Indiafocused fund in the next few years, according to an executive at the firm.

“We consider (launching) a fund every three to four years. We still have ample dry powder in our current fund and anticipate investing in at least 15-25 companies this year in total,” said Prashanth Prakash, partner at Accel.

Accel unveiled its seventh India-focused fund, with a total corpus of $650 million, back in March 2022.

Likewise, Softbank is expected to end its over 12month investment hiatus in India, with plans to commence its investment cycle by May/june this year by allocating between $75 million and $125 million each to artificial intelligence (Ai)-focused companies, Business Standard reported earlier.

“As Softbank prepares to make new investments in India, it is betting on one of the potentially most significant AI deployments in the world’s most populous and fastestgrowing major economies. While Softbank was the first mega-investor to embrace AI, it will now be the predominant theme in writing new cheques,” said a source familiar with the matter.

Softbank, alongside Tiger Global, is reportedly exploring an investment of up to $300 million in e-commerce unicorn Meesho, alongside other existing investors like Peak XV and MARS Growth Capital.

Notably, Peak XV Partners has already made five investments in India this year.

Queries directed to Tiger Global and Softbank remained unanswered until the time of going to press.

“The sentiment among foreign investors towards the Indian market has undergone changes this year. Firstly, they are finding it increasingly challenging to invest in China. Secondly, they perceive many of the visionary policies implemented in India. The stability of our policy regime is a bright spot globally,” remarked Prakash.