By Karan Verma
As we reach the midst of 2023, the venture capital (VC) landscape in India is experiencing significant changes. This transformation is driven by technology and the need to support innovative startups with unconventional, high-risk financing which is reshaping how investments are made in the country.
The Growth of venture capital in India
Venture capital investment in India has seen a remarkable surge, with the figures growing from $3.1 billion in 2012 to an impressive $38.5 billion in 2021, marking a remarkable 13-fold increase. This surge can be attributed to the flourishing startup ecosystem, as India now ranks as the third-largest global hub for startups, boasting over 99,000 DPIIT-recognized startups across 670 districts as of May 31, 2023. The current generation of Indian entrepreneurs, equipped with foreign education and a willingness to take risks, is actively seeking and utilizing global venture capital partnerships to their advantage. This growth underscores the vibrancy of India’s startup ecosystem and the potential for mutually beneficial partnerships with venture capital investors on a global scale.
The rise in unicorns
Over the past three years, India has witnessed a rise in the creation of unicorns, with 44, 11, and 7 unicorns emerging in each respective year. Interestingly, this surge occurred during the challenging backdrop of the COVID-19 pandemic, reflecting the resilience of Indian entrepreneurs who not only contributed to the economy but also played a crucial role in COVID-19 relief efforts. In 2020 alone, more than 10 unicorns were born. This trend underscores the dynamism and adaptability of India’s entrepreneurial landscape, even in the face of global challenges.
Key investment sectors
In 2021, India’s venture capital landscape saw certain sectors take the lead. B2C and B2B commerce, technology, consumer tech, fintech, and SaaS stood out, drawing over 75% of VC investments. SaaS and fintech, in particular, gained momentum, growing from 25% to 35% of total funding in 2022. These sectors not only attracted the most investment deals but also secured the highest deal values, highlighting their vital role in India’s dynamic startup scene.
Emerging key trends in India’s VC landscape:
- Focus on Early-Stage Ventures:
Investors are increasingly directing their attention and resources toward early-stage startups. They are enthusiastic about discovering and nurturing promising opportunities among these budding businesses. This shift in focus highlights a growing realization of the tremendous potential that lies within these young companies, where fresh and innovative ideas are born.
- Rise of Advanced Technologies:
Cutting-edge technologies like Artificial Intelligence (AI), Machine Learning (ML), blockchain, and quantum computing have taken center stage in the VC arena. These technologies are capturing the imagination of investors due to their potential to disrupt various industries. Investors are eager to back startups that leverage these transformative technologies, foreseeing a future profoundly influenced by their capabilities.
- Corporate Venture Capital (CVC):
Established corporations are rewriting their strategies by engaging with startups to foster growth and innovation. The surge in Corporate Venture Capital (CVC) represents a strategic shift, as large companies increasingly recognize the advantages of external innovation. This trend offers exciting prospects for startups seeking partnerships that can fuel their growth while providing established companies with fresh perspectives and increased agility.
- Global Investment:
India’s vibrant tech ecosystem has garnered the attention of international investors. They are drawn to India’s burgeoning startup landscape, enticed by the promise of diverse investment opportunities. This influx of global capital not only widens the pool of funding sources but also elevates competition and industry standards.
- Focus on Sustainability:
With growing global concerns about climate change and environmental sustainability, investors are showing a strong preference for startups dedicated to addressing these critical challenges. Ventures with innovative solutions to environmental problems are receiving increased attention and financial support.
In 2023, these emerging innovation trends are creating the threads for the Indian venture capital landscape, reshaping the future of investments. Navigating this dynamic terrain provides fertile ground for opportunities and challenges, including the ever-growing world of corporate venture capital and intensified competition on a global scale. For founders, the key continues to be a unique value proposition, a committed founding team, and conviction — in an evolving landscape of Indian VC, where innovation converges with an opportunity to build the future of business and tech in India.
(The author is Karan Verma, Co-Founder & Director, FAAD Network, and the views expressed in this article are his own)
