Indian PE, VC investments decline 35 pc to USD 39 billion in 2023: Report (2024)

FAQs

What is the trend in VC investment in India? ›

VC investments in India dropped nearly 65%, from $25.7 billion in 2022 to $9.6 billion in 2023. Deal volume and average deal size saw a downturn. The number of deals fell approximately 45%, from 1,611 in 2022 to 880 in 2023, while the average deal size decreased by about 30%, from $16 million to $11 million.

India accounted for 7 per cent of the total VC deals announced globally in January-July 2024; the country's share of the corresponding disclosed funding value stood at 4.3 per cent.

The numbers signal investors are concerned by slowing economies and elevated inflation, and the impact those are having on young companies. Global VC investment last year fell to the lowest since 2017, even as new technologies such as generative artificial intelligence attracted funding.

Global funds have played a crucial role in driving PE investments in India during H1 2024, with their share of the PE deal value surging to ~75% from ~50% in 2023. The top global PE funds invested ~$10 billion in India during H1 2024, already surpassing their total outlay in 2023 (~$8 billion).

Competition for deals: Competition for deals is another common challenge faced by VC firms. With many VC firms vying for the same deals, it can be difficult for a firm to stand out and secure the best investments. Misalignment of interests: Misalignment of interests is a common problem in VC.

Executive summary. India's venture capital landscape matured in 2023, as resilience accompanied challenges to shape the investment narrative. The moderation of venture capital (VC) funding in India (from $25.7 billion to $9.6 billion over 2022–23) mirrored global caution on risk capital.

While venture capital funding can greatly enhance a startup's chances of success, it's important to recognize that not all ventures funded by VCs thrive in the long run. Approximately 25-30% of startups backed by venture capital fail, representing 3-4 out of every 10 companies.

In 2023, the state that had the highest value of venture capital (VC) investment in the United States was California. The value of VC investments made in California amounted to over 81 billion U.S. dollars, followed by New York with nearly 21.65 billion U.S. dollars.

Venture capital funds typically have long tenures, beginning the first closing and running for 8-10 years. Fund managers usually seek pre-determined extension periods (2-3 years for example) to allow them for a smooth exit from all investments.

Market Conditions: The past few years have seen challenging market conditions, with distribution rates hitting a 14-year low. Market volatility and economic uncertainty have made it difficult for VCs to find suitable exit opportunities, forcing them to hold onto investments longer than planned.

Where is VC money going in 2024? ›

AI startups captured a record 28% of global VC funding in Q2 2024, totaling $18.3 billion out of $65.7 billion. This represents a significant increase, with AI funding driving an 8% rise in quarterly funding compared to Q1 2024.

India-specific sectors (might differ slightly for other regions): Information Technology (IT): India's IT sector is a powerhouse, projected to exceed $300 billion in sales by 2025 [3]. Electric Vehicles (EVs): The Indian government's push for EVs is expected to significantly increase their sales by 2025 [4].

Renewable Energy Sector

By 2030, India wants to have 450 GW of renewable energy capacity, comprising 5 GW of small hydropower, 10 GW of biofuels, 280 GW of solar power, and 140 GW of wind power.

Cash looks to be the king in 2024, as it continues to be the preferred method of payment in India, with a 15% growth in CAGR in the last seven years—while high-yield savings accounts offer lucrative returns and low-risk investments, such as treasury bills, alike.

Advancements in AI and data-driven approaches are enabling VC firms to operate more efficiently, reducing the need for large teams of analysts and associates. This trend is leading to a leaner, more focused workforce, emphasizing quality decision-making and strategic deal-making.

Also, Indian startups have raked in approximately $9.6 billion in the first eight months of 2024. If this trend persists, overall funding is likely to comfortably surpass the $11 billion achieved in 2023. For context, Indian startups received $38 billion in funding in 2021 and $25 billion in 2022.

Total Capital Raised in the Worldwide Venture Capital market market is forecasted to reach US$468.4bn in 2024.