It's a Good Time to be an Investor as Valuations have Moderated Following the 2021–22 Bubble: VCs According to a PwC report, investment in Indian startups fell to their lowest level in the first half (H1) of the current calendar year. Investors, however, believe that the best investment opportunities arise in circumstances like these, when entrepreneurs focus on sustainable growth and valuations are grounded in reality.

In the first half of 2023 (January to June), Indian startups raised $3.8 billion, a significant 36% decrease from the fundraising in the first half of 2022. This is also the lowest six-month funding in the previous four years, as per a research report by PwC India.

Amit Nawka, Partner – Deals & India Startups Leader, PwC India, asserted that a startup's journey through a funding winter is just temporary. "Despite significant untapped money reserves held by venture capitalists (VCs), there is a slowdown in startup funding. We can expect an increase in the pace of investments over the coming few months because active VC firms in India have just secured new funds."

What do VCs say about the present situation?

According to Chinmaya Saxena, Partner – Community Strategy, BEENEXT, funding winter and other ecosystem disruptions continue to loom over the startup ecosystem globally. While growth-stage firms may still find it difficult, BEENEXT's primary focus market of India, early-stage startups founded by driven founders, are less likely to be negatively impacted.

The secret, according to Saxena, is to maintain achieving early Product Market Fit while showcasing tangible outcomes and consumer love. "For the next 18 to 24 months, you must manage your burn/runway in a very pragmatic manner," Saxena instructed.

Sushanto Mitra, Founder and CEO, Lead Angels said that it's a tougher environment for startups to raise money and a good time for angel investors to invest. "Sometimes, as is the case now, when funding gets tougher, startups raise bridge rounds at bargain prices to remain afloat. We are likely to see more companies raising bridge rounds in the near term. As the market revives, this will taper off," he continued.

Meanwhile, as noted by Vishesh Rajaram, Managing Partner of Speciale Invest, the fundraising process would not be severely impacted by the present market sentiment. Regardless of the dominant market factors, startups with strong technology, teams, and business ideas will raise money.

However, the funding environment may continue to be difficult for a few more quarters before an epicycle takes effect. In addition, this is an excellent moment to invest because valuations have stabilised following the 2021–22 bubble, according to Ankur Mittal, Co–founder of Inflection Point Ventures.

When it came to investment, Mittal fully agreed with Warren Buffet's maxim, "Be greedy when others are fearful and be fearful when others are greedy." "By taking advantage of chances during times of ambiguity, we adhere to this philosophy. We kept aggressively looking for excellent possibilities even at the beginning of the Covid epidemic, when other businesses temporarily suspended investments," he stated.

How does the future look alike?

Things have gotten extremely difficult since 2021, which was an exceptionally strong year for Indian companies looking to raise money. Although the market situation has changed, this does not necessarily mean that funding is becoming more difficult; rather, it just means that investors' strategies have changed. The relevant startup still has plenty of funding options, especially in the early stages. While every investor is aware that a startup is unlikely to become successful in its first or second year, they nevertheless require a clear path to profitability as the business develops. Ankit Kedia, Founder and Lead Investor of Capital A, stated that founders who have a strong grasp of financial management and efficiency in handling cash and human resources will find it simpler to persuade investors.

The investment forecast for the upcoming year, according to Anirudh A. Damani, Managing Partner, Artha Venture Fund, is not simply favourable; it is assertively bullish. The best investment possibilities appear in situations like these, when entrepreneurs redirect their attention to sustainable growth and valuations are based on reality. "Because these times produce the highest ROI, I like to invest during them."

"We are still optimistic about founders who are persistent and committed to resolving significant problems in India. There is enough dry powder in the ecosystem to support such startups," emphasised Rahul Chowdhri, Partner at Stellaris Venture Partners.