India’s Startup Scene: Late-Stage Wins Overshadow Early-Stage Struggles
Investment is still bustling in India’s startup scene, but the spotlight has shifted dramatically. Unlike the previous years that saw a frenzy of funding across countless new ventures, today’s investors are exercising caution and gravitating towards established firms with proven business models. This pivot is making it tougher for early-stage disruptors to secure the backing they need to innovate.
The numbers reveal a stark reality: early-stage funding—including seed, angel, and Series A investments—has nearly halved since its peak during 2021-2022. While it’s true that late-stage and growth investments have surged this year, the overall investment landscape is feeling the strain from a significant downturn in early-stage funding, affecting both total funding amounts and deal-making activity.
To put it into perspective, early-stage funding has dropped to around $3 billion across 1,533 deals through November 2024, down from $4 billion across 2,137 deals during the same period last year. This decline has caused total startup investments to decrease to $15.9 billion, a dip from $16.5 billion year-on-year, despite growth- and late-stage funding climbing to $13 billion in 2024, compared to $12.4 billion in 2023.
Recent investments encapsulate this shift towards later-stage ventures. Take Zepto, a quick commerce platform, which raised a massive $665 million in Series F funding back in June. Similarly, ride-hailing service Rapido secured $200 million in its Series E round this September. These companies are eyeing initial public offerings (IPOs) in the near horizon, a clear indicator of investor confidence in more mature startups.
The Early-Stage Slowdown
The current slowdown in early-stage funding is a direct consequence of market dynamics observed over the past two years. “The reality is, not enough startups received funding in the last two years. Finding viable two- to four-year-old businesses is now a challenge due to the limited supply,” explains a partner from an early-stage investment firm.
2024 year-to-date funding is at a six year low
This bottleneck is rooted in the funding winter that rolled in late 2022 and persisted through 2023, which has resulted in fewer startups ready for Series A funding today. While pre-seed and seed funding levels are “fairly decent,” the significant slowdown is evident in Series A and B investments, although there’s been a glimmer of hope as activity has picked up recently.
During the explosive funding years of 2021 and 2022, investors were keen to back numerous startups across various sectors. Fast forward to today, and they are adopting a more cautious approach, closely monitoring the performance of previously funded startups before committing to new companies in the ecosystem.
Early stage funding is recovering slower compared to growth and late stage deal making
Global Factors at Play
It’s crucial to understand that India’s investment landscape is intertwined with global trends, especially considering that over 85% of startup funding comes from foreign investors. “The influx of dollar capital hasn’t rebounded as expected,” remarks a prominent venture capitalist.
The cautious flow of dollars is influenced by various global factors, including exchange rate fluctuations. “Many investors still view India as a long-term opportunity rather than a direct replacement for China, hence the anticipated surge of dollar capital has yet to materialize,” he adds.
Growth-Stage Revival
Despite these headwinds, the growth-stage investment scene is flourishing, with Series B and C investments hitting $3.5 billion across 209 deals in the first eleven months of 2024, up from $3.4 billion across 225 deals last year. This uptick signals robust investor confidence in startups that have established products and customer bases amid a trend of venture-backed companies going public at more modest valuations.
A prime example is Ola Electric, which priced its IPO at a roughly 22% discount from its last valuation of $4.3 billion. Similarly, FirstCry maintained its valuation at about $3 billion for its IPO. “Investors are increasingly inclined to support late-stage companies that could potentially reach IPO status within the next few years, fueling their enthusiasm,” notes a growth-stage investment firm co-founder.
As the dynamics shift, we are witnessing a departure from sector-focused funding, leaving new startups in emerging sectors scrambling for capital. In past years, multiple early-stage firms within the same sector secured funding, leading to heightened competition and, in some instances, overfunding. Venture capitalists are now taking a step back, waiting to see how these startups evolve and compete before deciding where to invest next.
