$4.5 billion in fresh VC money awaits deployment to Indian startups

Even as venture capital funding shows signs of slowing in the Indian startup ecosystem, several global investment firms have made new commitments of over $4.5 billion to the sector, but mostly early stage transactions.

In recent months, renowned venture capital firms – Sequoia, Accel, Matrix and Lightspeed, among others – have announced new fundraising with a particular focus on seed investments in India, although there remains to see when this new capital will start flowing.

Besides these global companies, local entities have raised or are in the process of raising new funds for seed investments.

In 2021, India’s startup ecosystem raised a record $38.5 billion. But this year has seen a change in momentum, particularly in the April-June quarter, largely driven by global factors, with May seeing investments of $1.85 billion, the lowest in every month of this year.

“Usually when you go through this environment, new sectors start to bubble up and some of the green shoots emerge. That’s what excites us,” says Venky Harinarayan, partner at Rocketship.vc, which surveyed earlier this month. $125 million in the first closing of its third fund.

The Silicon Valley-based venture capital firm, which has backed nearly two dozen domestic startups including NoBroker, Khatabook and Jar, did not disclose how much of its new fund’s capital it will deploy in India.

According Your story SearchIndian startups raised $17.1 billion in 891 deals between January and June, 82.8% more than the first half of 2021. However, it’s important to look at the numbers in continuity with the second half 2021, when $22.7 billion was invested through 865 transactions.

Moreover, most of the deals announced in the first half of this year would likely have been formulated and implemented at least two months earlier, and the real downturn would begin to show in the second half.

But the level of confidence remains quite high among VCs who want to continue betting on Indian startups.

Sequoia accounts for the majority of new capital raised for Indian startups this year. Sequoia India and Sequoia Southeast Asia have collectively raised $2.85 billion across a suite of funds, including venture capital and growth funds in India and an $850 million fund in Southeast Asia.

“This fundraising, which comes at a time when markets are starting to cool off after a very long bull run, demonstrates our deep commitment to the region and the confidence our sponsors have in the long-term history of the region. ‘India and Southeast Asia,” the venture capital firm said in its blog post.

In addition to new capital raised for India, several have increased the size of their funds. Accel announced a seventh fund of $650 million in March. By comparison, his sixth fund was $550 million.

Moreover, the slowdown has not had a profound impact on early-stage startups.

As Rema Subramanian, co-founder of Ankur Capital, put it Your story in a previous interview, “There is a greater slowdown in the growth phase than in the first category.”

She added that the possibility of return on start-up investments is quite high.

The biggest impact is on later-stage investments, with larger private equity funds such as Tiger Global and SoftBank slowing, mired by losses in the fiscal year ending March. These are typically in the Series C and beyond funding stages.

Several reports, however, indicate that Tiger Global has started investing in early-stage startups, particularly in the Series A and B tiers. In fact, earlier this year the company made its first seed investment in Shopflo, a Software-as-a-Service, or SaaS, startup.

Amid all this, other venture capitalists – both local companies and cross-border entities – have announced plans to raise separate funds for India. These include Eight Roads Ventures, IvyCap Ventures, Jungle Ventures, Athera Ventures and Ganesha.

Global VCs have also dedicated more resources to India in segments such as fintech, edtech, B2B, SaaS, crypto, blockchain and agritech.

Given the current environment, the focus will be on finding new areas in which to invest. As one VC put it, “the secular trends around India are still very strong.”

Industry players believe that now is the time to invest because there is less noise in the ecosystem and more clarity on which companies to invest their money in.

“We’re in a period of transition,” says Venky of Rocketship, “although it’s hard to say where this will settle.”