Navigating the evolving landscape: The state of fundraising in 2024 for Indian startups

As we progress through 2024, the landscape of fundraising for startups in India is undergoing a significant transformation. Amidst global economic uncertainties and shifting investor sentiments, Indian startups are poised at a crucial juncture, navigating through challenges while capitalising on emerging opportunities.

Ash Narain, CEO and Founder of Marquee Equity, offers insights on the evolving landscape of fundraising for Indian startups in 2024.

Current economic landscape

The year 2023 witnessed a notable downturn in fundraising activities for South Asian startups, with a staggering 53% plunge in deal value, contributing factors included unfavourable macroeconomic conditions resulting in high-interest rates and cautious investor behaviour.

Additionally, the Federal Reserve's decision to reduce expected rate cuts due to persistent inflation in the US suggests a prolonged period of higher interest rates globally. Against this backdrop of uncertainty, India stands out as a beacon of economic resilience, with an expected GDP growth of around 8% for FY25 and a stable political landscape bolstering investor confidence.

The opportunities

Theme investing emerges as a promising avenue for investors, with a spotlight on the manufacturing theme, particularly in the context of the 'China +1' strategy. India's Production-Linked Incentive (PLI) scheme further enhances the attractiveness of investing in manufacturing sectors, allowing investors to capitalise on the evolving supply chain dynamics.

The challenges

The shifting investor focus towards profitability presents a notable challenge for startups accustomed to prioritising growth over immediate returns. Venture capitalists now seek startups with clear paths to profitability and sustainable business models, signalling a paradigm shift in investment preferences.

Trends and prediction

1. Focus on fundamentals: Investors prioritise startups with strong unit economics and demonstrable product-market fit, signaling a departure from flashy pitches built solely on future potential.

2. Strategic investments and consolidation: Expect increased strategic investments and consolidation within the startup ecosystem as companies seek to optimise resources and gain market share.

3. Resurgence in venture capital activity: Startups from the boom years (2020-2021) may return for fresh capital, driving a resurgence in venture capital activity compared to the cautious approach of 2023.

4. Rising venture sebt: Venture debt emerges as a vital component of India's funding ecosystem, alongside equity funding, enabling startups to manage the balance between equity and growth.

5. Impact and sustainability: Investors exhibit growing interest in startups addressing social and environmental challenges, aligning with the broader focus on environmental, social, and governance (ESG) factors.

Advice for Founders:

1. Focus on profitability: Prioritise demonstrating a clear path to sustainable growth and profitability.

2. Embrace innovation with purpose: Target solutions that address social and environmental challenges, appealing to impact-driven investors.

3. Build strong unit economics: Develop a robust revenue model that supports future scalability and growth.

4. Seek strategic partnerships: Collaborate with established players to effectively leverage resources and expand market reach.

In conclusion, while navigating the fundraising landscape in 2024 presents its share of challenges, Indian startups stand poised to seize emerging opportunities, driven by innovation, resilience, and strategic partnerships. By embracing a balanced approach emphasising profitability, sustainability, and innovation, startups can chart a course toward long-term success in the dynamic Indian startup ecosystem.