High-flying venture investors In India, managing hundreds of millions of dollars dilutes expectations, making bets on early-stage startups that they hope in a best-case scenario will make 3 to 5 times the capital invested.
Several top investors in India, including Peak
However, the mood has changed this year. Investors are increasingly warning they are struggling to discover real money return prospects – the latest headache facing the world’s most populous country. (Venture capital firms that recently raised less than $250 million have confirmed that venture capital firms with $500 million or more in capital reserves have more difficulty deploying those assets profitably.)
Venture capital firms generally make between 20 and 30 investments per fund, betting on a few startups that are likely to generate significant returns to offset other losses. They aim to have 2-3 of their portfolio companies drive the majority of the fund’s capital gains. This strategy of pursuing high-risk, high-reward deals is particularly popular among early-stage investors who allocate most of their capital to emerging startups in hopes of landing the next big thing early.
The abundance of capital has led Indian investors to turn unnaturally cautious and selective, founders and investors said. Companies have been scrutinizing deals in the Series A and B stages for up to 6 months now, whereas such deals required less diligence earlier, an investment banker said. The Indian sovereign fund has been evaluating an investment in agritech startup WayCool for more than six months at this point, according to two people familiar with the matter. Gaming startup Loco has also been in talks with investors to raise about $80 million, but after more than six months no deal has been reached.
Bessemer Venture Partners’ India team has signed just one net deal this year, according to people familiar with the matter. One investor noted that Bessemer takes months and months of due diligence and maintains a high level of skepticism.
Anant Vidur Puri, Partner at Bessemer Venture Partner, emphasized that the firm has made only one net new investment in India this year, saying that the fund is “roadmap focused” and is looking to build a focused portfolio of high-quality investments as it often desires. Double existing support.
“We also don’t know the stage, so we can come to Series A, B or C and we look to continue supporting our investments in stages, consistent with the focused portfolio strategy. Some years we do 6-7 new deals and some years we do 0 as well which is What it does may depend on when we see attractive and compelling investments in the market, but on average, we make no more than a handful of new investments each year,” he told me in a text message.
Reflecting the slowing pace of investment in startup ecosystems globally, Indian startups raised nearly $7 billion in capital in 2023, according to market intelligence platform Tracxn, down from about $25 billion in 2022 and $37 billion. In 2021. In fact, it is the lowest since 2016 (only one Indian startup – Zepto – entered the unicorn club this year).
Some investors said they are taking more precautions due to the decline in the value of many major Indian startups, which they say has forced them to rebuild their market thesis for India.
Prosus recently cut Byju’s valuation to less than $3 billion. (Byju’s, which has raised more than $5 billion to date, was valued at $22 billion early last year.) Pharmeasy, once valued at $5.4 billion, recently raised capital at a 90% discount. Vanguard has cut the valuation of ride-hailing giant Ola by more than 60%. Food delivery company Swiggy, merchant payments platform Pine Labs, and SaaS company Gupshup also faced write-downs this year. Reliance and Google-backed Dunzo, which raised more than $500 million, are struggling to make payrolls, and BNPL startup ZestMoney, which raised more than $130 million, has shut down.
India-focused investors are also increasingly moving into Southeast Asia. In recent years, companies such as Peak XV and Lightspeed have expanded into the region, backing several early-stage startups, some of which have become big winners.
However, some major investors are now concerned, saying too much capital is chasing too few viable deals in Southeast Asia, inflating valuations and reducing potential returns. (In a recent interview, Peak XV said he remains very optimistic about Southeast Asia.)
Investors are also wondering whether they have overestimated the SaaS opportunity in India. “Everyone had underwritten the product risks, and companies were able to build products. No one was able to sell/scale revenues beyond a meaningful point,” said a US-based Indian early-stage investor, adding that very few Companies managed to break into American networks to sell to American companies.
Dave Kher of Lightspeed Venture Partners India He said There were less than 100 transactions for Indian enterprise software startups through seed through growth in 2023. The market is still largely focused on seed transactions, and the Series A round is the “choke point.”
“Hundreds of seeds made in India in 2021/2022 are finding it difficult to break into enterprise budgets due to shrinking budgets and/or many of them are light features for me as well,” he wrote.