The venture capital market (VC) in India has been booming again after two long years of sluggishness. In 2024, the VC investments surged to $13.7 billion as per the VC report published by Bain & Company in association with Indian Venture and Alternate Capital Association (IVCA). The startup investments increased 1.4 times in 2024 compared to 2023, and this made India the second-largest destination for venture capital investments in the entire Asia-Pacific region, and all these had happened even though the broader market was sluggish. So, what are the factors pushing the startup investments to go up the ladder? Let’s find out. 

IPO Boom

The ultimate motto of a venture capitalist or any other investor investing in startups is to see the businesses going public so that they can have their share of cake. With the recent IPO boom, the exit landscape for the startup investments has become more certain now and the exit values have risen to a whopping $6.8 billion. The investors’ liquidity quotient has improved drastically and the public market exit has taken over as it made up to 76% of the total exits in 2024. This indicates the startups are flourishing and IPOs have become the most preferred choice for exiting the market. 

Even the valuation of IPOs increased 7 times driven by investor-friendly policies, technology stocks performing well again, and of course higher liquidity. National Company Law Tribunal (NCLT) process has been removed for IPO-bound companies and this has decreased the overall IPO preparation duration to 3-4 months, which was earlier 12-18 months. The overall regulatory process of IPO has streamlined as well. 

Resurgence in Investors’ Confidence

The Bain & Company’s VC report suggests that the investors’ confidence in startup investments is again coming back with the macroeconomic conditions becoming favorable, and this is changing the VC landscape as well. Deal volume increased by 45%, up from 2023’s 880 deals to 1270 deals in 2024. While the smaller deals make up to 95% of the total count (deals within $50 million), the number of large deals, which are above $50 million, doubled in 2024. This indicates the investors’ interests are again on the rise in high-growth businesses. 

Interestingly enough, investors’ confidence in the Tier II and Tier III startups has been rising especially with the successful business stories of ShopKirana, FreshToHome and similar businesses. Family offices and corporate VCs investments have increased 1.8 times as well, while private equity funds accounted for 20% and above VC deals. 

Technology Growth is Indispensable 

Amongst startups, it has always been technology which drove the market, and again in 2024, it was consumer technology which was the fastest growing and investments in these businesses grew by 2.3 times to $5.4 billion in the year. From edtech, to B2C commerce, gaming, travel tech, quick commerce businesses witnessed a footfall of investors, which surged $100M+ deals by 4 times to 16 deals in 2024 from 4 in 2023. 

Zepto was a clear winner in this segment, sweeping out investment worth $1.4 billion, and this was a big turning point for investors too, which boosted their confidence in the quick commerce segment again. 

On the other hand, the SaaS investment and software-based businesses’ investments increased by 1.2 times and raised $1.7 billion. The pivotal factors behind this surge were higher demand for automation, enterprise technologies, and AI-driven solutions across the world. Capital shifted from AI application in 2024 instead of AI infrastructures, and generative AI solutions saw an increased funding by 1.5 times, indicating AI driving the growth prospects. 

Conventions Still Hold Strong 

While the new age tech-driven businesses are gaining all the attention, the conventional sectors such as banking, insurance, and financial services also saw a significant surge in their investments. Not only the BFSI sector, but the retail or consumer sector also witnessed growth. 

The BFSI investments increased 3.5 times to $1.1 billion in 2024, and it had been primarily led by NBFCs and MSME lending. The consumer or retail sector investments rose by 2.2 times to $0.9 billion, pivoted by different food and beverages startups, premium brands, and D2C brands. 

Decline in Fundraising 

While the deal-making has gone up, fundraising declined as per the report, and it is by a whopping 35%. It has come down to $2.7 billion, the lowest since the pandemic year 2020. Cautious deployment strategies, a smaller number of large fundraisings, and a surplus of uninvested capital led to the decline. That said, unallocated capital is immensely present in the market and indicates towards a strong investment run in 2025. 

Changes in Regulations and Outlook for 2025

In 2024, the rise in the startup investments must also be attributed to positive reforms in the regulations pertaining to startups, such as – 

• Abolition of Angel Tax, which boosted the early-stage investments
• Foreign VC investors’ registration process also simplified, which helps them access the Indian market easily
• Changes made in the capital gain taxes as well

All these made investments for startups to surge in 2025, and 2025 also looks promising as per the experts. Startup investments will be more focused here, as suggested by the report, it will be directed more towards sectors like semiconductors, energy transition, and deep tech solutions. While VC and private equity funds have their share of volatility as well, but the medium to long term outlook remains strong enough.

Source: Cnbctv18

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