Funding Winter Presents a Unique Opportunity for Homegrown VC Firms to Shine The funding winter has given domestic venture capital firms a rare chance to demonstrate their adaptability and resilience. During these difficult times, new strategies and crucial maxims have emerged, changing the financial landscape.
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Indian venture capitalists have raised a substantial sum of money this year and are prepared to invest in many Indian startups at fair values, which has a unique advantage over other developed economies. After private equity investors Multiples Alternate Assets Management and Chiratae Ventures, 3one4 Capital announced its final close on Monday as the third India-focused fund to do so in the previous two weeks.
Despite the fact that mid and growth stage investments in India have slowed down, a resurgence in early stage investing is currently under progress, with various funds making strategic investments across sectors.
"At 3one4 Capital, we continue to invest in early stage startups in consumer internet, SaaS, fintech, and enterprise & SMB digitization, while expanding our investments in digital health and climatetech," shared Nruthya Madappa, Partner, 3one4 Capital with Entrepreneur India.
The VC firm has already made ﬁve investments this year, and raised a new USD 200 million fund to support the next set of generational tech leaders from India.
According to Shashank Randev, Co-founder of 100X.VC, Indian investors are well-positioned to build their portfolios and shine over the next decade, while other regions may be slow to deploy capital. Since 2022, 100X.VC has grown its cheque size from INR 25 lakh to INR 1.25 crore in each startup and has since invested in 25 companies.
Milan Sharma, Founder, 35North Ventures believed that many firms that had shaky foundations have been eliminated by the funding winter, separating men from boys. Homegrown VC now has the advantage of being able to attract quality startups at competitive valuations at a time when funding is scarce in the industry. The second benefit, as per Sharma, is that only businesses with strong business models are able to raise money, which benefits the ecosystem and other angel investors in addition to VC funds.
According to angel investor Prateek Toshniwal, venture capital firms have adopted a new approach since 2022, characterised by a higher focus on sustainability and wealth development.
"The primary objectives in the past were rapid growth and scalability, while the emphasis today is on building scalable and sustainable businesses. VC firms are now giving priority to startups that show a distinct route to profitability, effective operations, and solid fundamentals," he said.
Toshniwal urged that establishing scalable, sustainable businesses that can withstand market volatility is now more important than just rapid development.
At a business conference organised by IvyCap Ventures last year, a group of venture capitalists, private equity investors, and strategic investors stated that a financing winter may actually be "healthy" for India's startup ecosystem. It might also lay the framework for more moral, well-run, and sustainable companies with a clear path to profitability, ending the "drunken" over-investing and irrational hyper-valuation of businesses.
"There is now recognition that the golden age of Indian venture funds is finished, businesses must begin paying back investors' funds," Prashanth Prakash, Founding Partner of Accel made this statement during the conference. The finest companies must be allowed to succeed on the basis of their performance and fundamentals rather than being unfairly left behind due to an excess of capital in the market, he highlighted. The ecology benefits from the winter.
Since January, some 30 funds have been launched to support Indian businesses at different stages, indicating a growing ecosystem. B Capital, Courtside Ventures, Capria Ventures, Dallas Venture Capital, Iron Pillar, Lighthouse Canton, Nexus Ventures, Pi Ventures, Rockstud Capital, and Z3 Partners, among others, were among the VCs that established the funds.