Investors are expected to focus on early-stage startups in the fields of gaming, healthtech, electric vehicles, and artificial intelligence (AI)-led use cases, as overall VC funding decreases during the global economic downturn, as per a recent report by Boston-headquartered management consulting firm Bain & Company. The report suggests that this shift in interest is due to the decline in late-stage large deals, leading to a compression of 33 per cent in deal value in India from $38.5 billion to $25.7 billion over 2021-22.
Sriwatsan Krishnan, Partner at Bain & Company, stated, "2023 will likely see the emergence of a more resilient ecosystem as stakeholders remain cautiously optimistic. SaaS and fintech will remain significant. While regulatory oversight may have some impact on fintech, focus on globalisation of the India Stack is likely to open up new avenues."
The report also suggests that participation from a wider investor base, including micro-VCs, family offices, and global funds foraying into India, is likely to sustain. The investor landscape has broadened, while the share of leading funds has reduced to less than 20 per cent from 25 per cent as activity from global crossovers and hedge funds slowed down.
Arpan Sheth, another Partner at Bain & Company, said, "The ecosystem faced foundational shifts as VCs pivoted focus to unit economics and startups faced a challenging year with multiple regulatory challenges, lay-offs, and corporate governance issues surfacing."
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Despite global headwinds, the report suggests that 2023 will likely see a stronger and more resilient ecosystem emerge. Rajat Tandon, President of IVCA, said,"We remain optimistic about the long-term growth prospects of the industry and its ability to navigate uncertainty, identify opportunities, and support India's dynamic entrepreneurial ecosystem."
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