India has $20 bn dry powder waiting to be invested: Peak XV MD Anandan

Says investors are looking to invest unallocated capital in sectors like AI

The Indian startup ecosystem is currently sitting on $20 billion — around Rs 1.6 trillion — in dry powder waiting to be allocated, according to Rajan Anandan, managing partner, Peak XV Partners (formerly Sequoia India).

Dry powder refers to unallocated capital raised by private equity and venture capital (PE/VC) players that are ready to be invested.

This comes at a time when the Indian startup world has been at the receiving end of a funding slowdown, with investors becoming more selective with their bets.

Speaking at the Global Partnership on Artificial Intelligence Summit at Bharat Mandapam on Wednesday, Anandan said that investors are looking to invest this unallocated capital in promising sectors like artificial intelligence (AI), specifically in companies offering both AI-based products and services.

“In the next 15-20 years, India will have at least 50 new (AI-driven) billion-dollar companies that are going to solve problems for the largest companies around the world,” he said.

According to data from research firm Preqin, PE/VC dry powder in India increased to $15.6 billion until March 2023, up from $12.8 billion in 2022 and $11.1 billion at the end of 2021.

As many as 70 India-focused PE/VC firms closed funds in 2022, raising an aggregate of $8.5 billion — the highest-ever annual fundraising value, Preqin said.

Peak XV has around 400 active Indian startups in its investment portfolio. Among these, 100 are software product-focused companies, while 25 are AI companies.

This development occurs at a time when Indian startup funding has fallen to a seven-year low in 2023, in line with the so-called funding winter.

Investments among fledgling firms fell 72 per cent year-on-year to $7 billion this year, compared to $25 billion the previous year, according to data from Tracxn — a market intelligence platform.

India’s global ranking also dropped a spot to fifth place in the list of the highest-funded geographies globally in 2023.

However, investors say that the country’s startup ecosystem is going through market recalibration after an influx of venture capital investments in 2021 when startups raised a record $42 billion in funding.

Investors have since become much more selective with their bets, and the average time taken for investment deals to go through has also increased, according to industry watchers.

Anandan stressed the creation of an open-source-based framework for Indian AI companies to ensure a level playing field for companies operating in the space. He added that India should not regulate the AI industry “in line with the requirements of Big Tech.”

“Today, India has the lowest-cost, best-performing population-scale mobile broadband networks in the world. We achieved this without developing any telecommunications (telecom) hardware and very little telecom software. Finally, we have the most advanced real-time digital payments network in the world, built entirely on an open-source framework,” he said.