Private equity and venture capital funding for Indian startups shot up in June to its highest monthly investment in the last two years, buoyed by increased growth-stage deals, infusing optimism in an otherwise sombre funding environment for new-age tech companies.
Indian startups recorded $1.6 billion in 62 private equity and venture capital deals in June, according to data sourced from analytics firm Venture Intelligence. The last time monthly investments topped this figure was in June 2022, when investors poured $2.5 billion into 116 transactions.
Of the total funding in June, $1.06 billion came in growth stage deals, with quick commerce company Zepto securing a huge sum of $665 million in a pre-IPO round, followed by eyewear brand Lenskart and logistics company Ecom Express with $200 million and $172 million in funding, respectively.
“As the artificial big funding rounds disappear, there’s more predictability in building businesses led by public markets. I would say 30% are phenomenal businesses. This top 30% is doing well and getting a lot of love. Zepto, for example, is the opposite end of Dunzo,” Karthik Reddy, co-founder and managing partner at Blume Ventures, told Mint.
This comes at a time when tech investors globally have slowed down investments in growth-focused new-age tech firms, resulting in a tough period for such companies in India over the past two years.
Halfway into 2024
Reddy added that while deals are happening for such companies, the remaining 70% is still struggling to attract enough confidence from investors, hurting the funding environment.
“40% is always the middle—it’s tricky, doing well, but people are not getting confidence, and they are not giving more growth capital. It slows down growth artificially, there is a lot in that zone. They are not at risk of dying, but they are not growing as fast as they should. (The last) 30% don’t deserve the valuations or to be alive, or they are going through a tough time,” said Reddy.
The increase in funding this month does not, therefore, signify an end to the funding winter, as startups have recorded 26% lower investments in 2024 so far compared to the same period in 2023. About $5.5 billion worth of investments flowed into Indian startups from January to June of 2024, compared to over $7.4 billion during the same period last year.
Peak XV, Accel India slow down on deals
Among top Indian investors, venture capital firms Peak XV Partners and Accel India appear exceptionally cautious, signing only 13 and 10 deals, respectively, so far in 2024, down from an average of about 42 and 26 deals in the same period in the last three years.
Blume Ventures, meanwhile, has topped the charts in most active investors list with 18 deals so far, leaving behind Peak XV and Accel, who have led the race for the past three years.
To be sure, investors across the board have cut down on deals. This includes Blume Ventures, which averaged 24 transactions in the last three years.
“Even as I construct my portfolio I am looking at what the next investor will look for. I have to think two steps ahead. Earlier, that wasn’t as much of a concern as you would think someone would pick it up. Now you know that no one is going to, and you have to have that path to unit economics and profitability by the time you go for a Series A. That is how the market is shifting,” said Reddy.
