World over, unfavourable macro-economic factors have led to the slowing down in funding. Factors, like post-pandemic tightening of monetary policies, intensifying geopolitical tensions, majorly the Russia-Ukraine conflict and the US-China decoupling and trade sanctions leading to global supply chain shocks have diminished confidence levels among venture capitalists who’ve, for long, viewed Europe and China as the most promising funding destinations, especially in the deep-technology sector.
While the West and the rest of the world grapples with this downturn, India finds itself in a sweet spot, emerging as an outlier. While the rest of the world averaged a 3-4% growth, India recorded an impressive 7.2% growth.
In 2022, India ranked fourth, globally, in venture capital (VC) investments, with $24.1 billion invested. This represents a 12% increase from 2021. The majority of VC investment in India is focused on early-stage startups, with seed and Series A rounds accounting for more than half of all investments.
A growing pool of potential investors, including high net worth individuals, family offices, and corporate venture capital funds, a strong track record of success for Indian startups and a favourable regulatory environment are fuelling this new-found attraction for India.
Rajat Khare, founder of Luxembourg-based venture capital firm, Boundary Holding, is upbeat about the company’s prospects in India, a land of his roots.
“We are looking to capitalize on and contribute to India’s significant growth in revenue, smart workforce, and innovation in the deep-tech sector. Also, our investment philosophy is impact-based as we only invest in start-ups that solve a social pain-point.”
One of the VC firm’s first investments was in TrashCon, a waste management start-up based in Bengaluru. Its patented technology, TrashBot, separates the worst form of waste automatically with minimal or nil human intervention, preventing environmental and human damage.
The firm has also invested in Skilancer Solar, a start-up specializing in providing permanent professional cleaning services [MCS] of solar panels of commercial parks & establishments. Remedio, a company that uses AI for early detection of eye diseases, is another company that Boundary Holding is betting on.
The traditional approach, while making investment decisions, is giving way to a more value-adding one where investors are making their own unique strategies with growing emphasis on the people behind the idea. You could have the best idea in the world, but it might never get off the ground with the wrong team in place.
“The people behind a company, and their character, is extremely important for us. We invest in them, not the company, per se. Their reliability and potential for a long-term relationship and work ethic is key.”
Mr. Khare added: “Over 90 percent of start-ups fail. The few that make it big all solve a problem. We are attracted to startups that bring value to the community. We also think like a local. The decision to invest in any country comes only after investing time and resources in understanding the local sentiment, technology landscape and regulatory environment. We also try to be as niche and contrarian as possible”.
Boundary Holding is just one small example.
Beenext, a global venture capital firm that invests in early-stage technology startups in India, Southeast Asia, Japan and the United States. It had closed its emerging Asia fund at $110 Mn in 2020, committing more than half to Indian startups.
Founded in early 2021 by Brendan Rogers and Hershel Mehta, 2am VC is focused on investing in early-stage startups in India and invests in startups across sectors, such as edtech, fintech and healthtech. Its list of portfolio companies includes fintech startup, Karbon Card, and digital health and fitness platform, BurnCal.
In contrast to the United States, where venture capital funding in 2023 leaned heavily towards sectors like AI, India’s funding landscape has been more evenly distributed across a wide set of sectors. This diversification points towards a balanced and adaptable approach to investment, fostering a more resilient ecosystem.
The lead-up to 2024 appears promising. The recent resurgence of the IPO market and the anticipation of global interest rates decreasing has set the stage for a favourable investment climate.