Investors Expect to Witness a Revival in Funding and Growth Sentiment

The Indian startup ecosystem is currently being impacted by the capital crisis period, which we would call Recalibration. After seeing one of the best capital inflows of USD 40 billion in 2021, the industry went through a phase of consolidation in 2022, with investments declining to USD 25 billion.

According to Karan Mittal, Partner, Ev2 Ventures, “We must approach this consolidation with realism if we want to create an environment that can support itself. Businesses must begin to generate their own revenue and stop relying on outside financing.”

However, it’s important to remember that a comparable or even worse scenario existed at the height of the Covid-19 outbreak, and the resilient business models were uninjured at that time.

“We have discovered and invested in a couple of great businesses in 2021, which have turned out to be outperformers in our portfolio. This has led us to remain optimistic about our ecosystem and view this turbulence as a passing phase,” said Rohini Prakash, CEO, Tomorrow Capital.

Prakash expects to witness a revival in funding and growth sentiments in the next 6-12 months. “In fact, this is an opportune time to identify the right set of founders and support them wholeheartedly. By backing the right combination of a strong business model and founder, one can observe them increasing their market share in a challenging period like this, where others might struggle to stay afloat,” she continued.

What do some investors target this year?

“Our main areas of interest at Ev2 Ventures include battery technology, EV financing, warehousing technology, agri supply chain, and aftermarket supply chain, among other things,” Mittal said. The smart venture mobility fund will keep an eye out for potential competitors across the smart mobility sector.

It is looking to actively invest in around 3-4 companies by the end of this year. These investments would be made from Fund I of approx INR 45-50 crore and its primary focus will be on ventures seeking investment for their Seed to the Pre-Series A stage of funding.

“We evaluate startups on their ability to innovate, develop novel solutions, and secure intellectual property rights for their innovations. We also attach considerable weightage to the backgrounds of founders as well as the ability of startups to scale the business model, achieve positive unit economics, and adopt a collaboration-focused approach to deliver superior value to target markets,” Mittal highlighted.

Tomorrow Capital’s focus for the year ahead is to back a minimum of two companies, with a particular emphasis on growth-stage companies seeking a Series A round. The key aspects it is looking out for in companies include a large Total Addressable Market (TAM) and a first-mover advantage in their respective space. “Profitability, or a clear path to profitability, is also a core value that we have prioritized at Tomorrow Capital since its inception, and it remains a significant factor in our investment decisions,” Prakash stated.

35 North Ventures is targeting to invest in 25 new opportunities over the next one year from its IDF (India Discovery Fund) of USD 50 million across the sectors. “We are in the process of launching a debt fund with INR 500 crore as AUM. Besides, we are also exploring the idea of setting up an ESG fund which will focus primarily on EV space and clean tech,” shared Milan Sharma, Founder, 35 North Ventures.

35 North Ventures seeks entrepreneurs who concentrate on providing value propositions and focus on unit-economics to capture markets rather than just traction as part of its fund’s policy.

As part of its fund’s policy, 35 North Ventures looks for founders who focus on offering value propositions and focus on unit-economics to capture markets and not just traction.

Angel investment platform Inflection Point Ventures aims to invest Rs 100 to Rs 150 crore in Indian startups in 2023 across sectors including edtech, fintech, D2C, cleantech, deeptech, and many more. Through a number of processes, IPV assesses the founders, their teams, business strategy, PMF (product market-fit), TAM (total addressable market), etc before investing.

According to IPV, such financial crises are cyclical in nature and give founders the chance to reconsider their strategy, concentrate on important metrics like profitability, and develop more reliable business procedures.

Venture Catalysts and 9Unicorns intend to achieve approximately 200 investments in the calendar year 2023. While most of its funds are sector-agnostic, the VC firm has placed emphasis and deep focus in four sectors, including deeptech, SaaS, ESG in agriculture and EV, and insurance in the fintech sector.

“When investing in a company, our main aim is to understand and ensure that we deliver value to the startups we enter into a deal with. We are also looking to fund startups with investing technologies that can disrupt the Indian and global markets,” shared Dr Apoorva Ranjan Sharma, Co-founder, Venture Catalysts and 9Unicorns.

A group of venture capitalists, private equity, and strategic investors said that a financing winter may actually be “healthy” for India’s startup ecosystem at a business conference hosted by IvyCap Ventures last year. It might also put a stop to “drunken” over-investing and irrational hyper-valuation of companies, and establish the groundwork for more moral, well-run, and sustainable organisations with a clear route to prosperity.

Prashanth Prakash, Founding Partner of Accel, said during the conference that “We need to ensure that the best firms truly win on the quality of their execution and fundamentals rather than being unfairly edged out due to abundant resources in the market. The ecology benefits from the winter.”