Indian startups continue to see strong capital inflows despite macroeconomic headwinds, including a slump in consumer demand.
Startup funding so far this year has risen to a record level, surpassing last year’s peak, as these young companies grow faster than ever before. As a result, investors with large pools of capital are chasing Indian startups.
In the first seven months, $4.7 billion has been invested in Indian startups across 346 deals, compared to the $4.3 billion across 338 deals during the corresponding period last year, according to data from Venture Intelligence, a startup data tracker.
While the rise in deal value and volume may be marginal, it indicates that investor interest in India’s technology startup ecosystem remains healthy, despite the gloomy outlook for the broader economy.
In August alone, two large deals of more than $100 million were signed. Social commerce firm Meesho raised $120 million in an investment round led by South Africa’s Naspers, while regional language social network ShareChat secured a $100-million round led by Twitter.
“The fact is that we have not seen the effect of the downturn in the performance of the actual companies yet. And that is what is driving a lot of this interest in funding, because startups are still growing very, very rapidly. I have never seen this kind of growth in my entire career of venture investment,” said Ritesh Banglani, managing partner, Stellaris Venture Partners, an early-stage fund.
While old-economy companies and sectors are seeing sluggish demand, newer sectors such as mobility, the sharing economy, niche consumer brands, and internet-driven businesses will continue to grow at a fast pace, investors said.
“Venture capital investors also take a long-term view on the markets they invest in. While the Indian economy is showing a few troubling signs on the macro front with growth in important sectors slowing, it is still a very attractive investment destination for long-term capital, and quality of entrepreneurs and startups is quite good,” said a partner at a top tier VC fund on condition of anonymity.
Fundraising activity for VCs has also been strong.
A number of early-stage investors, including Blume Ventures, India Quotient, Fireside Ventures and Endiya Partners are on track to close funds worth a total of $350 million by the end of year. Top tier US-based funds such as Sequoia Capital, Accel Partners and Lightspeed Venture Partners are also hitting the market this year to extend their India fund or to raise new funds altogether.
To be sure, the growth slowdown in the past year has hit select sectors even in startups. For example, after the liquidity crisis which began last year, a number of lending startups since then have struggled to raise equity as well as debt, and have seen their disbursements fall.
However, despite this, fintech deal volumes in India crossed China for the first time ever in the second quarter of 2019, Mint reported on 15 August.
Startups seem isolated from the broader slowdown also because these companies are relatively smaller, and have enough headroom for growth, said two entrepreneurs on condition of anonymity. “Even after we achieve serious scale, the tech is always good enough to keep us growing even if the economic conditions don’t always favour us,” said the CEO of a startup, one of the two cited above.
