India's startup ecosystem sees rebound, late-stage deals take lead

Investors attribute the revival to the country's strong public markets, which are boosting confidence in initial public offering (IPO)-bound startups offering viable exit opportunities

After over three years of funding slump, the country’s startup ecosystem is showing signs of recovery. 

 

Startup funding in 2024 has increased by 10 per cent year-on-year (Y-o-Y), touching $9.78 billion, compared to $8.88 billion during the same period last year, according to market research firm Tracxn.

 

Investors attribute the revival to the country's strong markets, which are inspiring confidence in initial public offering (IPO)-bound startups offering viable exit opportunities.

 

“The funding winter is coming to an end,” said Anirudh A Damani, managing partner, Artha Venture Fund – a micro-venture capital (VC) fund. “This resurgence is partly fuelled by high valuations in the public markets, which have led some smart investors to pivot from public equities towards private investments,” he added.

 

Several Indian startups went public this year, including workspace provider Awfis, baby products brand FirstCry, electric vehicle (EV) maker Ola Electric, and, most recently, food delivery major Swiggy.

 

Meanwhile, others like quick commerce (qcom) firm Zepto, edtech unicorn PhysicsWallah, wearables brand BoAt, and fintech major Razorpay, among others, have plans to go public in the near future.

 

The revival comes after a record-breaking $44.3 billion raised in 2021, followed by a period of declining investments.

 

The current rebound is viewed as more cautious and sustainable.

 

“Unlike the boom of 2021-2022, this revival is more balanced. Investors are now weighing the opportunity cost of capital more carefully, which is reflected in tighter valuations,” said Damani. 

 

Imminent IPOs buoy large deals

 

Funding has been bolstered by late-stage rounds as investors have become more bullish on cutting larger cheques in companies that are exhibiting near-term IPO readiness.

 

Late-stage funding recorded a 25 per cent Y-o-Y increase this year to $6 billion.

 

Meanwhile, seed-stage funding fell 23 per cent to $849 million and early-stage funding fell four per cent to $2.6 billion, Tracxn data showed.

 

At the same time, the number of funding rounds has fallen by 32 per cent from 1,831 deals last year to 1,254 in 2024, pointing to larger cheque sizes.

 

Industry watchers said this shift indicates that investors are now taking a more deliberate approach. They are choosing to “go deeper” with fewer startups that exhibit strong fundamentals and clear growth trajectories.

 

“Investors are focusing on growth-stage companies with demonstrated revenue traction, strong market position, continued growth headroom, and stabilised unit economics. Tese businesses provide the clearest path to IPO and exit for investors in a defined time-frame,” said Dushyant Singh, managing director at VC firm Playbook Partners.

 

Resurgence in small deals

 

While the bullishness on near-term IPOs has enabled late-stage rounds, investors have admittedly also witnessed a trickle-down effect in smaller rounds.

 

“At Fireside, we have seen strong interest in investing in early-stage consumer startups, both from funds and family offices, as conviction is increasing in the consumption space,” said VS Kannan Sitaram, partner and co-founder, Fireside Ventures.

 

Others like early-stage VC firm 100X.VC have also reported seeing a strong influx of early-stage deal flow.

 

“The foundational appetite for early-stage investments remains robust, as the drive to nurture and scale innovative ideas shows no signs of slowing down,” said Ninad Karpe, founder and partner, 100X.VC,  an early-stage VC firm.

 

Investors said that as the startup ecosystem continues to recalibrate, early-stage funding is expected to gain momentum in the upcoming quarters.