In line with the tight funding environment, fundraising in India’s venture capital market has slowed significantly since last year. The first half of 2024 saw the close of 21 new venture capital funds with only $1.3 billion in commitments, according to a report by Pitchbook, while the entire 2023 has seen 23 new funds raising $1.7 billion in total.
For perspective, between 38-49 new venture capital funds were closed every year since 2015, with commitments between $2.4-$4.5 billion. However, 2022 was an outlier year. The post-covid startup funding boom, induced by low interest rates globally, saw 78 new VC funds raise $11 billion in commitment, a big chunk of which could not be deployed during the funding winter that followed, leaving sufficient dry powder for whenever funding levels pick up.
While the outlook for India’s venture capital market is optimistic, low domestic fundraising is still a challenge, which may delay a rebound to the high activity levels seen several years ago, said Kyle Stanford, lead analyst, venture capital, in the report.
“Much of the optimism for near-term growth has been driven by the reassessment of investment in China, with the expectation that investors looking for exposure to similar risks will see India as fitting that bill. This reallocation will not occur quickly, especially as global headwinds persist and GP (general partner) and LP (limited partner) appetites for emerging-market venture exposure rebalance,” he added.
Not just India, the global venture capital market has also been contending with challenges of waning interest from limited partners because of a lack of desired returns and a pullback from institutional investors. To make things tougher, in India, the number of exits by venture capital funds has also slowed down substantially in the first half of this year.
VCs have managed to make 30 exit deals till June this year, generating a combined value of $1.2 billion. In comparison, 2023 had seen 105 exit deals, generating $4.8 billion in total, Pitchbook data showed. “Though the economy is strong, and economic headwinds are less intense than in other venture markets, the inability to realise returns for VCs and LPs clouds the outlook for India,” it added.