Once burnt, investors curb ardour for India’s startups
India’s economy and stock markets are booming, but its startups are not.
Investors, once eager to pump in billions of dollars in promising Indian tech ventures, are now going slow and cutting smaller cheques. They’ve been burnt by ignominious falls from grace — and valuations — for oncemarquee young firms or market debutants of recent years such as digital payments company Paytm .
Karthik Reddy, managing partner at India’s Blume Ventures, which has invested in hundreds of earlystage startups, said his firm plans to do about eight new deals this year compared with 12 last year. It will invest bigger sums in firms it is confident about instead of spreading funds across more companies.
“When existing portfolio is not showing gains, it is hard to be excited to do more,” he told Reuters.
Focus on profitability
Investors looking at Indian startups are much more focused on potential profitability, less enamoured with tech firms and more interested in stable brickandmortar businesses, according to Reuters interviews with six executives at foreign and domestic investment firms as well as two CEOs at startups.
In January and February, India’s startups raised about $900 million — a pace that signals another slow year after a sixyear low of just $8 billion in 2023, Venture Intelligence data shows.
That’s a far cry from the record $36 billion raised in 2021 or even the $24 billion in 2022. In contrast, India’s stock market — spurred on by 8%plus economic growth — has surged 19% since the beginning of last year, hitting a record high this month. The twothirds drop in funding last year for Indian startups was also much steeper than the 36% drop for U.S. startups and the 42% drop for Chinese startups, CBInsights data shows.
Significantly, Blume’s next fund is set to be either equal in size or smaller than its last one which raised $290 million — an unusual development for a top Indian venture capital firm. India’s 10 biggest venture capital firms have over the past decade always embarked on bigger funds than their last one, a Reuters analysis shows.
“In this environment. I don’t think we can make big returns with more money,” Mr. Reddy said.
Less startup funding can have a broader economic impact. In the last eight years, startups generated 2025% of India’s new jobs and 1015% of its economic growth, an Indian trade body and McKinsey said in a report.
Much of the blame for investors’ relative reticence towards startups — described by PM Narendra Modi as the “backbone” of the country — can be laid at the sharp turnarounds in fortune for Paytm, online educational firm Byju’s and Uberrival Ola Cabs.
Paytm’s shares have plunged 80% since its 2021 listing. It was criticised at the time for valuing itself too high and is now in crisis after the central bank ordered its banking arm wound down for persistent noncompliance.
Byju’s, once the poster child for India’s startup ecosystem, was valued at $22 billion in 2022 but now values itself at around $200 million. It’s at loggerheads with investors over a rights issue and cannot pay its staff. In some cases, valuations have plunged even without a major crisis. Vanguard, an investor in Ola Cabs, slashed the ridehailing company’s valuation to $1.9 billion, a drop of 74% from 2021, although it did not give a reason.
Ashish Sharma, CEO at Temasekbacked InnoVen Capital, which has invested $1.5 billion in Asian startups, said it was clear with hindsight too much capital was poured into some sectors, leading to sharp increases in valuations.