After the Euphoria

The abundance of capital that came with India's start-up boom has long subsided. It's time for a measured and mature approach

- Ayaan Kartik

Up until three years ago, investors were gushing over India's start-up ecosystem. New age firms were finding bold capital. Fledgling ideas were turning billion-dollar businesses. And then suddenly, the music stopped. The economy that emerged after the pandemic was no longer in the mood for big risks. The rapidity with which the economy was digitising lost steam and central banks tightened the supply of cheap money.

Daring investors who were willing to watch their cash burn in the hopes of conquering the world turned cautious. Valuations plunged. Star start-ups imploded. A long funding winter set in.

But now, the tide seems to be turning again. The year has begun with big funding announcements. Leading venture capital (VC) fund Accel said in January that it has raised $650mn to support growth-stage start-ups in India and Southeast Asia. Microsoft chief executive Satya Nadella announced that the company will invest $3bn in India, part of which will support start-ups. Central banks around the world have started slashing rates.

The future has once again started to look bright for businesses that are pegged to help India become a developed nation over the next two decades. Yet, it is unlikely that things will go back to how they were. “The lessons of the last correction will stay with investors,” says Nruthya Madappa, a partner at VC firm 3one4 Capital.

She believes that following the correction over the past couple of years, founders and investors will focus on building sustainable businesses that are healthy in the long term while balancing steep growth.

An analysis of growth-stage start-ups by Outlook Business reveals this change of focus, even as the results of the change appear mixed. While start-ups in a handful of segments have started doing well and seem on their way to becoming large, sustainable businesses, others are finding it hard to bear the pressures of competition.