What is Venture Capital?
For Entrepreneurs, it’s capital against a portion of their company to be used to grow the venture.
For Investors, it’s an investment into an alternate asset class with an expected return within an expected time frame.
For venture capitalists themselves it is an art and science of a balance between both, or as we say at Auxano to Support Entrepreneurs yet Landing Back the Investors Safe.
What is this balance and how the ecosystem reflects it?
Quite a few years ago, 2005–07…
Around 2005–07, there was a significant milestone in the Indian Startup Ecosystem, marked by a $17.1 Bn investment inflow, a 1.31x growth from the previous year.
This surge was driven by investor enthusiasm for the asset class and its potential.
- Notably, Indian IT companies achieved valuations exceeding $10 billion
- Ventures like Make My Trip secured substantial venture capital.
- The emergence of companies like Flipkart, Myntra, and Dream 11 further fueled investor confidence and ecosystem growth.
However, this excitement was short-lived due to the global housing crisis, which impacted the VC/PE industry despite a relatively low impact on Indian markets.
Subsequent years saw fluctuating cycles;
While VC investments grew between 2011 & 2015, they declined during 2009 & 2012, influenced by events like:
- The sovereign crisis
- Oil prices
- The Japanese Tsunami
However, the years 2011 & 2015 marked a peak, with $22.9 Bn of capital inflow and various factors driving investor confidence and funding for emerging tech-first companies.
This was attributed to:
- Investor confidence soaring as Justdial and Make My Trip went public.
- More and more VCs set their offices in India
- Smartphone usage was on the rise
- Foreign companies like Intel invested and collaborated with Indian startups
- Funding for emerging tech-first companies like Zomato, Snapdeal, and Ola was increasing.
- Inmobi became the first unicorn.
This was about Yesterday, How about Today?
Recent developments include:
- Jio’s actions boosting internet penetration
- The introduction of UPI for digital payments
- The pandemic accelerating digital adoption.
- Flipkart secured significant funding and was acquired by Walmart, a notable exit for Indian investors.
Result of this is a substantial peak in inflow at $69.8 Bn, significantly higher than previous peaks.
The growth has started to consolidate again due to factors like:
- Global inflation
- Wars
- Slower growth projections for major economies
- Lower revenue growth for major IT companies.
How about tomorrow?
The cycles we mentioned earlier form an equilibrium.
Periods of lower funding is a result of limited venture capital availability, causing companies to seek capital at reduced valuations, making them more enticing for investors looking at returns.
As investment flows increase to exploit the opportunity of higher returns linked to lower valuations, opportunities continue to rise until the market becomes saturated, halted by rise in valuations and external forces as observed in previous years.
The cycle is reflected by investor doubt leading to exits on previous investments at cycle high and re-entry into investments strategically at lower valuations on the cycle lows.
While we see the ecosystem consolidating, India saw 9 companies raising over $50 Mn. in funds, while 3 of which successfully raised over $100 Mn.
Despite the current air of skepticism among investors, startups are presenting themselves at appealing valuations, promising intriguing times ahead until the next cycle peaks.
While today has started shade by investors’ skepticism, startups are available at lucrative valuations, until the next high…
Interesting times ahead.
Author:
Kanuj Jadwani
