By Priyadarshi Nanu Pany
Indian start-ups had a phenomenal year in 2021. Venture capitalists (VC) invested a record high of $38.5 billion in Indian start-ups, with the country minting 44 unicorns in 2021. The start-ups have got a headstart in 2022, mopping up about $10 billion during the first quarter (January-March), up from $5.7 billion in the same period in 2021, as per data collated by Venture Intelligence.
But there are some grim concerns about whether our start-ups can sustain this investment tempo. Global headwinds like a hike in interest rates by the US, geopolitical tensions arising from the escalating Russia-Ukraine conflict, crude oil prices going uphill, and battering of tech stocks have induced caution among investors.
Globally, the macroeconomic headwinds have slowed the pace of deal-making in the start-up ecosystem. This phenomenon has a ripple effect on Indian start-ups, too. According to a Bain and Company report released in collaboration with Indian Venture and Alternate Capital Association (IVCA), the Indian start-up ecosystem is likely to witness a shift in the pace and quality of VC deals in 2022.
Indian start-ups are gradually feeling the heat of a subdued investment climate. SoftBank founder Masayoshi Son has reportedly advised his executives to go slow on investing in tech start-ups. The news doesn’t bode well for the incumbent and aspiring Indian tech unicorns. SoftBank has invested in many successful unicorns like Oyo Rooms and Paytm. Some of the notable tech stocks have seen an erosion in stock valuations post their euphoric listing on the stock markets. Companies like Zomato, Nykaa, CarTrade, Policybazaar and others have witnessed a 40-60 per cent slump in their stock prices. Paytm, India’s biggest IPO, has seen its stock nosedive by over 70 per cent since listing.
The lacklustre stock performance of tech unicorns has spurred Delhivery (logistics start-up) and Oyo to delay their listing plans. Ride-hailing major Ola has kept its IPO plans in abeyance due to the bearish sentiment for tech stocks and is considering a fresh round of funding.
The funding winter means Indian tech start-ups will come under the lens of investors for their business practices, governance and growth trajectory. Still, I feel the Indian start-up story is one of buoyancy and resilience and can beat the funding blues. Ours is a robust start-up ecosystem with more than 57,000 start-ups launching operations and creating value worth $450 billion. An interesting catch is in the route tapped by the start-ups to raise funds. They have raised $112 billion between 2014 and 2021, but fundraising is largely concentrated in VC and angel funding space.
When funding by VCs and private equity (PE) players is getting mired in uncertainty, it’s time for the start-ups to leverage the other funding channels. Family offices or private wealth management advisory firms have emerged as a viable option. Backed by industry titans like Narayana Murthy, Ratan Tata and Azim Premji, they are investing in the start-up growth story. Murthy’s Catamaran Ventures has invested in start-ups such as Paper Boat and Udemy. Ratan Tata’s RTN Associates has made investments in ventures such as Car Dekho, Ola and Snapdeal. PremjiInvest’s portfolio includes brands such as Flipkart, Snapdeal and Lenskart. According to a report by 256 Network and Praxis Global Alliance India, family offices have invested over $5 billion in Indian start-ups in the past few years. By 2025, it is estimated that family offices in India will account for 30 per cent of the total $100 billion in start-up funding. That’s a considerable funding potential waiting to be tapped. The other option is in Ultra High Networth Individuals (HNIs), who are likely to invest up to $30 billion in tech start-ups in India by 2025, says the same report.
Indian start-up companies in the e-commerce, Fintech, and Edtech sectors can beat the funding slowdown with their disruptive nature, scalable business potential and problem-solving capacity. By shifting gears to strong financial metrics and defining a clear path to profitability, the tech start-ups can survive the funding winter and emerge stronger.
The author is founder & CEO of CSM Technologies. Views are personal.
