Indian startups are hoping for a better year as majority of them expect higher valuations from investors amid increased focus on profitability and sustainable operations. According to the latest edition of the India Startup Outlook Report by debt firm InnoVen Capital released on Thursday, a whopping 85 per cent (mostly early-stage founders) of the 100 VC/PE-backed startup leaders surveyed in the report said they expect higher valuations in their next round of funding relative to the last round.
44 per cent of such founders expect ‘significantly higher’ valuations in their coming round while 20 per cent of growth/late-stage founders expect a flat to a down round.
“While public markets (particularly tech) has seen a strong momentum (NASDAQ up 40+ per cent), there will be downward pressure on late-stage private valuations. On the positive side, we are now seeing a higher appreciation for sustainable business models, a laser focus on unit economics/profitability and more realistic valuation expectations,” said Ashish Sharma, Managing Partner, InnoVen Capital.
In 2023, as many as nine Indian unicorns lost 49 per cent value on average, according to a report by early-stage venture capital firm Orios Venture Partners. The pack was led by beleaguered edtech startup Byju’s with a whopping 86 per cent markdown in its valuation from $22 billion. Others in the list were Ola, Meesho, Pine Labs, Swiggy, PharmEasy, Eruditus, OYO, and Gupshup.
The report by InnoVen Capital noted that 62 per cent of founders have a higher bias on profitability versus growth this year, up from 55 per cent in 2023 and 17 per cent in 2022. In fact, 59 per cent expect to turn profitable in one to two years. Moreover, 78 per cent said they are optimistic about the fundraising environment in 2024.
Among other key findings from the survey report were:
Hiring good talent followed by fundraising and profitability were the top three challenges for startups.
48% of respondents anticipate some level of disruption to their business, due to rapid developments/use cases in AI capabilities with fintech and enterprise/SaaS founders identified highest impact of AI on their business models.
Focus on domestic IPOs continues to rise – 64 per cent in 2023 versus 30 per cent in 2020 driven by successful tech IPOs over the last two to three years.
Focus on sustainable business models and correction in valuations is seen as the biggest impact of the funding slowdown.
Only 39 per cent founders expect an increased pace of hiring in 2024 while expectations of a hiring freeze is down to 2 per cent versus 6 per cent last year.
A stable regulatory environment and better incentives for domestic players were the top two areas of improvement sought from the government.
AI followed by fintech and edtech were the most overhyped sectors while B2B, manufacturing and agritech, according to founders were the most underhyped sectors.