Early-stage investment in India to grow as gaming, EVs & AI top picks

Early-stage investment in India to grow as gaming, EVs & AI top picks

As overall VC funding squeezes into global economic meltdown, investors are expected to double down on early-stage deal-making in fields such as gaming, health tech, electric vehicles (EVs) and AI-led use cases. The interest in early-stage startups is due to the fact that overall funding saw a drop in 2022 led by a drop in late-stage large deals, according to a report by Bain & Company.

"2023 will likely see the emergence of a more resilient ecosystem as stakeholders remain cautiously optimistic. SaaS and fintech will remain significant while regulatory oversight may have some impact on Fintech, focus on the globalization of the India Stack is likely to open up new avenues," said Sriwatsan Krishnan, Partner at Bain & Company.

Participation from a wider investor base (micro-VCs, family offices, global funds foraying in India) is likely to sustain, he added. Last year saw a recalibration in venture capital (VC) investments in India as increasing macroeconomic uncertainty and recessionary fears affected investment momentum. Deal value in India saw a compression of 33 percent from $38.5 billion to $25.7 billion over 2021-22.

"The ecosystem faced foundational shifts as VCs pivoted focus to unit economics and startups faced a challenging year with multiple regulatory challenges, lay-offs and corporate governance issues surfacing," said Arpan Sheth, Partner at Bain & Company. The investor landscape has broadened while the share of leading funds has reduced to less than 20 percent from 25 percent as activity from global crossovers and hedge funds slowed down.

"We remain optimistic about the long-term growth prospects of the industry and its ability to navigate uncertainty, identify opportunities, and support India's dynamic entrepreneurial ecosystem," said Rajat Tandon, President, of IVCA. While global headwinds will impact India, 2023 will likely see a stronger and more resilient ecosystem emerge.