India's VC Landscape Matures Amidst Challenges In 2023: Report

India’s venture capital landscape matured in 2023, as resilience accompanied challenges to shape the investment narrative. The moderation of venture capital (VC) funding in India (from $25.7 billion to $9.6 billion over 2022–23) mirrored global caution on risk capital, says a report by Bain & Company and the Indian Venture and Alternate Capital Association (IVCA). Despite the decline, India has been ranked as “the second-largest destination for VC and growth funding in Asia-Pacific,” according to the report. 

In 2023, difficulties resulted in notable organisational impacts—more than 35,000 start-ups ceased operations, resulting in the layoff of over 20,000 employees, and several ventures underwent pricing adjustments, according to the report. 

Further, investors shifted their focus to traditional sectors such as consumer products and retail, as per the report. Investors such as Sequoia/Peak XV, Accel, and Elevation Capital mostly invested in the BFSI, real estate, and consumer retail sectors. 

Interestingly, exit activity by investors was something that was witnessed in 2023. The report says, “Average exit value increased from $32M to $74M over 2022–23, largely driven by sizeable exits from consumer tech companies (e.g., Lenskart, FirstCry, Flipkart).” 

The world of AI 

Along with the shifting focus on traditional sectors, there has been a growing interest by investors in the world of AI. Investment in the area soared to “$250 million in 2023 from a nascent base in 2022. 

Simultaneously, electric mobility continued to be prominent, securing over $0.6 billion in funding in 2023 compared to around $0.8 billion in 2022, with original equipment manufacturers (OEMs) and mobility services attracting over 70 per cent of its funding. 

As of 2024, there is optimism within the start-up ecosystem, as per the report. Start-ups that expanded significantly and secured funding during 2020 and 2021 may return to seek additional funds this year, fueling an increase in venture capital investment activity in 2024. Further, in the near future, “sectors such as B2C commerce, SaaS, and themes such as energy transition and agritech are likely to attract investor interest.”