Indian startups are on track to raise between $8-12 billion in funding this year, said Peak XV managing director Rajan Anandan, as funding returns to normal levels after seeing unprecedented inflows of around $70 billion between 2021-22.
“Last year, the funding was $7 billion, which people said is low. It could have been zero because basically, six years of funding came in two years. This year we are well on track to reach $8-12 billion. We are going to have an ecosystem which is going to have $10-12 billion in funding for a few years,” Anandan said while speaking at the inaugural session of Startup Mahakumbh.
Indian private equity and venture capital ecosystem has around $20 billion of dry powder, or uninvested capital committed to private Indian companies, he added. “From here on out, our startup funding will grow at a natural pace, which may be 10-20% a year, but it isn’t going to go from $10-12 billion to $25 billion. The reality is that we are back to a normal, very healthy pace of investment, which is adequate for the kind of ecosystem we have today,” he said.
While seed investments have continued to be vibrant, and Series A rounds are getting back on track, growth-stage companies need to show a path to profitability if they want to raise further capital. Anandan expects more growth-stage companies to become profitable and choose to go public to raise further capital. “So far, India has seen 15-20 large-cap IPOs including MakeMyTrip, InfoEdge, and Zomato, and PolicyBazaar from the current generation. Over the next seven to nine years, we’ll see at least 100 such startups go public. Instead of raising capital in private markets, they will get profitable, and in India, if you have 50-100 crore in Ebitda, you’ll can very well trade at Rs 4,000-6,000 crore,” he told FE on the sidelines.
Domestic capital
The Indian startup ecosystem needs high net-worth individuals, family offices, insurance companies, and pension funds to step and invest, as about 75% of the total funding in the country is still from foreign countries, said Amitabh Kant G20 Sherpa and former CEO of Niti Aayog.
Kant, while speaking at the inaugural session at Startup Mahakumbh, highlighted the need for long-term, patient capital and a large deep-tech fund of funds that will deploy capital into alternative investment funds. “The future lies in deep tech,” Kant said, adding that the key areas to innovate in the startup ecosystem are AI, big data, batteries, quantum computing, and green hydrogen.
Small Industries Development Bank of India (Sidbi) chairman S Ramann also emphasised the need for longer-tenure funds for deep tech, including perpetual funds. Last week, Sidbi ’s Fund of Funds for Startups (FFS) committed `9,500 crore for the promotion of new ventures.
In the wake of Byju’s legal troubles, Kant highlighted the need for startups to focus on self-regulation and invest in good audit and financial management. “Valuation at all costs causes lapses in governance,” he said, adding that the industry needs to create benchmarks in corporate governance.