Despite being the world’s third-largest startup ecosystem, India captures less than 3% of global startup funding, highlighting immense growth potential, according to Rajan Anandan, Managing Director at Peak XV and Co-Chair of the Venture Capital (VC) Council of the Indian Venture Capital Association (IVCA).
In an interview with CNBC-TV18, Anandan, along with Prashanth Prakash and Manish Kheterpal, discussed the current state and future directions of India’s startup and venture capital industry. They emphasized the need for increased domestic investment, support for new fund managers, and a focus on deep tech and innovative sectors.
Anandan revealed that of the $300 billion invested in startups globally in 2023, only $7 billion went to India. This disparity, he believes, represents a significant growth opportunity for the Indian startup ecosystem.
He also outlined the council’s four key focus areas for the next two years:
1. Ensuring more successful IPOs for Indian startups, with an increasing number of venture-funded companies going public each year.
2. Increasing domestic capital investment in Indian startups. Currently, over 85% of investment capital comes from foreign sources, with only 15% being domestic. The goal is to boost domestic investment significantly.
3. Supporting new fund managers and microVCs through programs and initiatives to help them succeed.
4. Focusing on deep tech, aiming to dramatically increase the capital available for deep tech startups at all stages.
Manish Kheterpal, Vice-Chair of the VC Council and partner at WaterBridge Ventures, noted that India’s venture capital sector holds $10–12 billion in dry powder, with private equity capital pushing this figure beyond $25 billion. However, he highlighted a reset in investor expectations and risk-return pricing. While early-stage investments (seed to Series A) have only slightly declined, there is a notable reduction in momentum capital for later-stage investments (Series B and beyond). This shift encourages a focus on sustainable, profitable growth rather than speculative investments.
Prashanth Prakash, Founding Partner at Accel India and Co-Chair of the VC Council, identified several key trends shaping the future of venture capital in India. He pointed to the surge in AI and generative AI startups, with significant funding flowing into these areas over the past two years. Additionally, new-age manufacturing companies leveraging advanced technologies, sustainable materials, and cybersecurity solutions are gaining traction. Prakash also underscored the importance of defence and space tech, both for self-reliance and as lucrative investment opportunities. These sectors are receiving substantial domestic investment and present significant export potential.
India’s startup and venture capital industry saw exits worth $6.5 billion last year, with a strong pipeline for future IPOs in the second half of this year, signalling a period of robust growth and transformation ahead.