SEASON OF CHANGE

VCs, armed with record dry powder in a buyer's market, are sharpening the focus on unit economics as green shoots in funding activity emerge. Is it signalling the beginning of the end for the funding winter?

- Binu Paul

SILICON VALLEY-BASED venture capital firm Tribe Capital said in a recent report that the total market capitalisation of VC-backed Indian public companies had crossed $50 billion in 2023, from less than $5 billion in 2020. Yet, the share of global VC investments into India had dropped to 3.3 per cent in 2023 from 5.5 per cent in 2019. This conundrum encapsulates the enduring puzzle of India’s start-up opportunity—a canvas woven with challenges and prospects.

While concerns about the lack of global investment flowing into India remain, the current sombre atmosphere is more a result of global macro events. Following a stellar year with $36 billion being poured into start-ups and the birth of 44 unicorns in 2021, a combination of global macro events—including the conflict in Ukraine, rising inflation, a spike in interest rates, and the lacklustre performance of tech stocks in public markets—has made investors jittery. As the mood shifts from exuberance to austerity, VC investors have directed their attention towards companies that exhibit disciplined control over cash burn, prioritise cash conservation and engage in judicious hiring practices. There is a clear preference for backing profitable or profit-focussed start-ups over those which aggressively chase growth. Discussions on corporate governance and internal controls have also become integral components of deal negotiations and due diligence processes.