VC Activity to be driven by scaled startups in 2024: Report

A report by Bain & Company and the Indian Venture and Alternate Capital Association (IVCA) anticipates increased Venture Capital investment activity

March 14, 2024

Shift towards traditional sectors alongside tech-focused industries noted

Generative AI and electric mobility sectors see significant funding momentum

Exit activity remains robust in 2023, with a surge in non-IPO public market sales

Crossover funds lead exit activities, driving strategic and secondary sales growth

Startups that secured funding during the flourishing periods of 2020 and 2021 may return to the market in 2024 seeking additional funds, which could fuel growth in venture capital investment activity, according to a report jointly produced by Bain & Company and the Indian Venture and Alternate Capital Association (IVCA). Moreover, the report suggests that risk-capital investors, aiming to diversify their investment portfolios might shift their focus towards more conventional businesses throughout the year.

The report highlights that in 2023, many growth and late-stage startups opted to postpone fundraising efforts, while investors adopted a more cautious approach due to escalating interest rates. Consequently, mega-rounds exceeding US$ 100 million dwindled from 48 in 2022 to just 15. Conversely, small and medium-sized deals, valued at less than US$ 50 million, saw a decline of approximately 45%, dropping from 1,501 deals in 2022 to 852 in 2023. Investments in India experienced a significant drop from US$ 25.7 billion in 2022 to US$ 9.6 billion in 2023. Experts commented on the current investment landscape, stating that while there are signs of recovery, the market has yet to rebound fully – a trend expected to persist throughout 2024. An upturn in investment activity is anticipated this year, particularly in the latter half, as many deals currently undergoing due diligence are projected to materialise. Notably, 2024 has already witnessed the emergence of two new unicorns, suggesting gradual improvement in the investment climate.

There has also been a shift in investor interest towards traditional sectors alongside the prevailing dominance of tech-focused industries. Increased investment in sectors such as offline retail, credit-focused banking, and financial services and insurance (BFSI) is anticipated, citing successful historical investments in these areas by venture capital firms. Notably, prominent venture capital firms like Accel and Nexus Venture Partners have begun expanding their portfolios to include consumer and offline business segments, signalling a broader trend towards diversification. In recent years, investors such as Elevation Capital, Accel, and Peak XV Partners have allocated funds to traditional businesses like Sarvagram Fincare, Vridhi Home Finance, Brick&Bolt, Fibmold, Neo Asset Management, and ApnaMart.

The report also highlights emerging sectors, with generative artificial intelligence (AI) experiencing significant momentum in funding, particularly in generative AI applications, which saw funding surge from US$ 15 million in 2022 to US$ 250 million in 2023. The electric mobility sector also witnessed increased funding, propelled by the growing maturity of the ecosystem, with over US$ 600 million in funding received in 2023. In terms of exit activity, the report notes a buoyant market in 2023, with exits reaching US$ 6.6 billion, a 1.7-fold increase from the previous year. Crossover funds led the way, comprising nearly 65% of the total exit value, with non-IPO public market sales emerging as the preferred exit route. Secondary and strategic sales also saw an uptick, primarily driven by mega-exits in consumer tech firms such as Lenskart and notable transactions like Tiger Global and Accel’s sale of Flipkart shares to Walmart.

Source: Economic Times

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