Global Venture Capital Investment Falls Again According to a recent report, VC investment in Q3'23 was the lowest since Q3'16 while VC deal volume was the lowest since Q2'19

Global venture capital (VC) investment fell from $81.4 billion across 9,563 deals in Q2'23 to $77.05 billion across 7,435 deals in Q3'23, says KPMG's Private Enterprise recent report, while adding that VC investors continued to act cautiously, taking much longer to make deals than in recent quarters, intensifying their due diligence, business models and the paths to profitability of startups looking for investment.

"Both total global investment and deal volume reflected multi-year lows; VC investment in Q3'23 was the lowest since Q3'16 while VC deal volume was the lowest since Q2'19," said the quarterly report titled Venture Pulse, highlighting VC investment trends globally and in key regions around the world.

It also said that cleantech, including EV, accounts for more than half of the largest VC deals in Q3'23 and AI continued to attract increasing interest from VC investors globally and across regions.

"VCs have been quiet with new investments and were looking at portfolio consolidation in the past few quarters. However, we are seeing green shoots of deal activity and expect a strong increase in the next 3-4 quarters. Path to profitability and positive cash flows will continue to be key KPIs," said Nitish Poddar, partner and national leader, Private Equity, KPMG in India.

VC investment in India this quarter

"India saw VC investment slide further during Q3'23, with Juniper Green Energy raising the largest deal of the quarter ($350 million)," said the report.

While VC investment in America accounted for $38.6 billion in in Q3'23, a drop from $39.8 billion in Q2'23, VC investment in the Asia-Pacific dropped from $24.2 billion in Q2'23 to $20.3 billion in Q3'23.

According to the report, VC investment in Asia fell for the seventh straight quarter in Q3'23 and despite soft investment compared to historical norms, China continued to account for the largest share of VC funding in Asia in Q3'23, including a $1.87 billion raise by GTA Semiconductor and a $1 billion raise by Rox Motor.

Why Indian VCs are prioritizing profitability

According to experts, India has been at a better place economically as compared to many countries. However, the caution exercised by investors in terms of investment decisions is reportedly a key reason behind funding winter. Investors have apparently been sitting with a lot of dry powder this year.

"While investors continue to seek innovation, disruption, and traction, an important change has been the shift in focus from hyper-growth to profitability. Startups can now be expected to leave behind the "growth at all costs" attitude. This profitable growth further needs to be supported with impeccable compliance practices," said Ankur Bansal, co-founder and director, BlackSoil Capital.

We have also seen financial irregularities at GoMechanic, BharatPe, Trell and Zilingo in the recent past. In fact, the after-sales service startup GoMechanic's cofounder Amit Bhasin, publicly admitted to committing "errors in judgement". "Our passion to survive the intrinsic challenges of this sector, and manage capital, took the better of us and we made errors in judgement as we followed growth at all costs, including in regard to financial reporting, which we deeply regret," Bhasin said in a post on LinkedIn.

These incidents have also made investors take cautious steps. "The recent slew of frauds unearthed in the Indian start-up ecosystem has made compliance and proper financial reporting paramount," added Bansal.

There is also an increased realization that honest and clear communication between founders and investors can go a long way in ensuring it is a win-win for both. Prioritizing ESG principles is also becoming increasingly important. Founders who prioritize ESG considerations seem to attract investors today. This is mainly because this implies the company's values and focus on contribution to society.