By Raja Singh Bhurji
India has become a rapidly growing economy, creating a favourable environment for both domestic and foreign investments. With the strength of the world’s largest young population, India offers a dedicated and skilled workforce with strong ethical values. The private equity and venture capital sector can thrive and is thriving, with tremendous growth in fundraising and improved practices and support. PE-VC firms made 292 investments totalling $13.5 billion in India in the first few months of 2024, according to the IBEF.
This period also witnessed large deals, totalling $10.1 billion, a 53% growth from the last quarter’s $6.6 billion across 25 deals. Venture capitalists fund new enterprises with high growth potential, delivering economic assistance, practical advice and networking opportunities. As per the reports by Bain & Company, as a result of tighter global policies, trade disruptions, geopolitical tensions and various governance difficulties, conservative investing is spiking.
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VCs “Now” Mindset
Earlier, venture capitalists focused on user acquisition and rapid expansion, often overvaluing companies even when they were unprofitable. They had a high tolerance for risk, focusing on the prospect of good returns and rapid exits through IPOs or acquisitions. Now, VCs are changing their investment strategies with these key trends:
High-Growth Equity Investments – Venture capitalists now carefully select which companies’ equity to invest in. Their goal is to ensure that these investments will increase in value and avoid underperforming. In the world of venture capital, they expect a select few companies to achieve remarkable success, as overall returns are frequently driven by a small number of successful investments. For example, an entrepreneur’s industry experience aids in identifying improvements, creating unique selling points, and driving sector growth. This makes sure that the solution is practical hence increasing the probability for the company to be profitable.
Focus on Tech – Another shift that we witness amongst VCs is their interest in startups based on technology and innovation. As tech technology is evolving, so are other businesses with its help. This is not limited to any particular industry as such but making sure that companies can use cutting-edge technology, artificial intelligence, etc. to improve their current procedures. New technology and innovation are impacting conventional sectors while opening up new markets and opportunities. As noted by IBEF, in India, IT and ITeS enterprises have taken the lead in investment, securing $2.28 billion, with notable contributions from Lenskart, PhonePe, and InsuranceDekho.
Data-Driven Decisions – The data and AI analytics have also altered the VC investing strategy. Investors increasingly analyse and evaluate startup data to forecast market trends and future opportunities, rather than old approaches, and make decisions based on analytical results. For instance, AI assists investors by evaluating large data sets from news, social media, and pitch decks to spot promising businesses.
Long-Term Gain – VCs are concentrating on long-term investment as compared to short-term gains, and offering companies with sustainable growth over quick exits. This not only benefits the investor but is also helpful for the broader economy. Hence they are looking for startups that can quickly resolve the existing market challenges and can be flexible to any future change as it helps with long-term success. For instance in India, many VCs are now supporting high-growth sectors like digitalisation, e-commerce, and energy solutions because they have a promising future.
Simultaneously, social and environmental issues are becoming more relevant and hence the capitalists are more observant and directed towards solving those issues. The nature of the industry offers a combination of profitability as well as positive social environmental results. And VCs are working with other firms and start-ups to share resources, dilute the risk and earn improved profits.
The emphasis on venture capital has switched from quick expansion at any cost to a strong business strategy. Previously, the goal was to establish firms fast, often at the expense of financial stability. Investors are increasingly interested in businesses with excellent business models, solid unit economics, and a clear path to profitability. This transition reflects a growing realisation that strong fundamentals are required for long-term success and that a startup’s capacity to make revenues while being financially healthy is critical.
Raja Singh Bhurji is the CEO and Incubation Director at The StepUp Ventures. Views expressed are personal. Reproducing this content without permission is prohibited.
