Outlook For 2025: For The Startup and VC Ecoystem and Impact Of AI The domestic startup ecosystem is expected to rebound with fresh approaches in key sectors like content, media, fintech, and marketplaces
By Rajul Garg
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The venture capital ecosystem saw important developments in India and globally, ultimately impacting India as well. Three major events need to be highlighted:
1. We are ending the COVID bull and bear run: The COVID bull run of investing started in 2021 and peaked in 2022. The venture markets froze in late 2022/2023, and now this period of thaw is coming to an end in 2024. With interest rates beginning to decline and elections in both India and the US concluding, this should mark a new period of organic growth in venture investments.
2. India's IPO markets continued to be bullish: The Indian IPO market remained strong, resulting in an abundance of domestic capital. Zomato reached new heights, instilling confidence in the ability of Indian consumer companies to deliver profits. The IPO pipeline is robust, with both large and small companies participating. Funds have been successful in raising domestic capital, although individual investors from 2021 have largely stayed away.
3. AI settled into a more stable growth curve: After the initial ChatGPT-fueled euphoria, the tedious but exciting work of solving real problems with AI has begun. More enterprises are experimenting with AI solutions, and startups are beginning to innovate fullstack business models. This trend should build momentum over the next 2-3 years.
LOOKING AHEAD IN 2025
1. The Job Market and Entrepreneurial Quality: The tech job market remains challenging, with significant productivity gains reducing hiring needs. This environment is driving more talented individuals toward entrepreneurship, improving the quality of founders. Seed investors are likely to find a steady flow of strong teams.
2. Resurgence in Venture Activity: Venture activity is expected to pick up organically across all stages—Seed, Series A, B, and C. Some global funds that have been absent are likely to return.
3. Price Reset Completion: The price correction for 2021/2022 companies is 60- 70% complete and should be fully resolved by the first half of 2025. This will mark the end of investor pain from the excesses of those years.
4. IPOs Driving Consolidation: IPOs are expected to drive further consolidation in India, as IPO currency enables acquisitions across sectors. Listed companies have begun acquiring smaller firms, and this trend is likely to grow, creating a healthier liquidity market for domestic companies.
IMPACT OF AI
1. Momentum Gains: AI gains will become increasingly visible, leading to significant momentum over the next few years. This will initially disrupt the most obvious industries and gradually expand to others.
2. Domestic Adoption Lag: Domestic companies have been slower to adopt new technologies, potentially making them less competitive against global players in tech-first sectors.
3. Global AI Trends: Globally, funding for non-AI software is expected to become nearly impossible. Startups that have not pivoted to AI solutions should do so immediately.
BOTTOM LINE
2025 is poised to witness a more robust capital environment, better-quality entrepreneurs, and an AI-driven market driving new efficiencies. This should create fertile ground for new investment opportunities across the board. The domestic startup ecosystem is expected to rebound with fresh approaches in key sectors like content, media, fintech, and marketplaces.
