Funding winter for startups likely to thaw this year

Venture capitalists are expected to make a comeback in 2024 after being cautious last year due to high interest rates and start-ups with inflated valuations. The investment focus is likely to be early-to-growth stage ventures. With the onset of the new year, an influx of investors getting behind companies and Series A and beyond funding rounds is anticipated. Industry experts and investors ensure there is ample capital, especially for India.

Prashanth Prakash, partner at Accel, in an interview with Mint, observed that around $15bn investment is expected to occur in the next 2-3 years. He also noted a significant correction in valuations without a decrease in deal volumes. He stated valuations are now realistic, paving the way for more deals.

Venture Intelligence data shows that private equity and venture capital investments totaled $27.9bn last year, down 40% from 2022. The VC funds also paid out approximately $3.5bn through 79 exits.

As mature start-ups look at public markets, early backers are expected to step aside for long-term investors in 2024. Investors are expected to make considerable returns on their investments, potentially through pre-IPO deals or OFS. Companies like Ola Electric, FirstCry, Lenskart, and others are planning to go public in 2024.

Pranav Pai, managing partner, 3one4 Capital, predicts a gradual increase in private market activity in 2024, responding particularly to positive signals from Indian IPO demand.

Many firms that raised capital in 2021 had to cut costs and restructure their business models to ensure long-term viability. As they prioritized unit economics and profitability over fundraising, these growth-stage firms became more attractive to investors. India, with its high rating from global investors, is expected to allure even larger flows, experts say.

Karan Sharma, MD, co-head, digital and technology investment banking, Avendus Capital, predicts 2024 as the start of an exciting growth phase marking India's five-year growth outlook. He anticipates a rise in public offerings from tech leaders and forecasts the next three years as a turning point for the tech ecosystem, aiming for a trillion-dollar milestone.