Will Home-Grown Funds Be Able To Save The Day?

Venture capital (VC) and private equity (PE) funds have suddenly turned conservative and startups find their capital flow pipeline drying up. Will the brand new crop of investors be able to sustain the velocity of capital?

- Resham Suhail

THE STARTUP ECOSYSTEM is witnessing an uptick in mergers and acquisitions after a surge in large-scale exits through initial public offerings (IPOs). The funding crunch being experienced by the startup community coincides with the economic slowdown and uncertainty that most economies are going through now. The mood within the venture capital (VC) and private equity (PE) fraternity is conservative.

Will home-grown Indian VCs be able to step up and fill the void of flight of capital toward a stronger reserve currency, the dollar? Home market players feel they do not have parity with international capital because approvals are comparatively slow, capital raising is highly challenging and higher constraints on overseas investments. While the overall sentiment remains positive, monetary policy tightening continues to remain a sensitive point affecting capital flows into India. According to a latest PwC report, the total funding in Indian startups dropped by 60 per cent in the second quarter of the 2021-2022 financial year (Q2 FY 2022). A number of startups such as Ola, Snapdeal and Pharmacy have delayed their IPOs because of the "funding winter".

A new crop of domestic investors are, however, on the prowl. These are India-focused investors and specialised theme-run funds. "We can't be competitive as a domestic VC industry unless we can avail of the same benefits in our home market as international investors can. It's far easier today to be an FDI investor than a domestic investor. We should ensure that this becomes a level playing field as well," says Karthik Reddy, Chairperson of the Executive Committee of the Indian Venture and Alternate Capital Association (IVCA).