Navigating the shifting tides of seed funding Seed funding in the country has gained prominence since the early 2010s. Tech and the booming e-commerce space found a promising investor pool ready to pounce on innovative ideas and concepts that solved a larger problem.
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In the ever-evolving landscape of India's startup ecosystem, the journey of seed funding has been nothing short of transformative over the past decade. Humble beginnings have turned into thriving investment avenues, and the path reflects the testing nature of the field, as well as the resulting success the investors and entrepreneurs have had.
Seed funding in the country has gained prominence since the early 2010s. Tech and the booming e-commerce space found a promising investor pool ready to pounce on innovative ideas and concepts that solved a larger problem. Angel investors came into the fore, bringing with them not just funding but valuable mentorship to inexperienced entrepreneurs.
The space witnessed a surge in seed-funding activities during the mid-2010s with incubators and accelerators emerging across major cities. This proved crucial as startups in their budding stages, helped by the incubation services drew a host of prospective funds towards them, as they now had two things that investors wanted to see the most; a ground-breaking idea and a clear pathway. The same period gave the world success stories such as Flipkart and Ola, further solidifying India's position on the global startup map.
Come 2024, the landscape looks different at best. Late-stage funding saw the biggest dip this quarter falling 46% to just $0.67 billion in the first quarter of 2024 from $1.25 compared to what was invested around the same period last year according to Tracxn, a global startup data platform.
The Seedstage funding however recorded a minor drop of 7% to $168 million in the first quarter from $180 million in the same period in Q4 2023. The data shows the numbers stayed the same compared to the Q1 of 2023.
Scratching the surface
India shows immense promise when it comes to startups. Most of these startups come from tier-1 cities and usually focus on consumer demographics close to their base as well. Considering the aforementioned, startups with impactful ideas are enticed by the fact that most of the country's market that live in tier-2 cities or lower and even rural areas are barely touched or yet to be penetrated, making it an exciting prospect for investors and entrepreneurs alike.
India is currently at a phase where regulatory reforms and government initiatives have been pleasantly conducive to the startup community, bolstering the ecosystem, and have proven favorable for seed-stage investments. Tax incentives for angel investors and easier exit norms have only furthered the case.
According to 100Unicorns, an early-stage accelerator fund that recently underwent rebranding from '9Unicorns', only 0.13% of Indian startups raise any type of seed funding despite the growth of the investor market.
The firm recently also announced its upcoming 'Fund II' of $200M along with a green-shoe option of $100 million. The venture further stated that it is looking to take advantage of the void that exists, especially in the seed funding space in India.
"Today, Indians are targeting moonshot ideas in emerging sectors like Space Tech, BioTech, Electric Vehicles & Cleantech. On the back of these developments, we are excited about this next step of launching a $200 fund that aligns us to the needs of the Indian startup ecosystem," said Dr Apoorva Ranjan Sharma, Managing Director of Venture Catalysts Group and Cofounder of 100Unicorns.
Despite the lull in the first quarter, India has always been one of the world's leading destinations for startup investments. Once considered risky bets have become integral to success stories such as InCred and Zepto, who emerged as unicorns in 2023. Investors, both domestic and international, are actively scouting for the next big idea in India's vibrant startup landscape.
Jatin Desai, Co-Founder & Managing Partner, Inflexor Ventures opines that the 'Startup India' initiative has significantly influenced investor sentiment towards tech startups, particularly at the seed-stage level.
The initiatives feature the Startup India Seed Fund Scheme and the Fund of Funds for Startups have primarily focused on assisting early-stage startups. The programs have proved vital for seed-stage startups to develop prototypes, conduct trials, and even aid in market entry.
"The Startup India initiative has simplified regulatory processes for startups, including the provision of tax exemptions and a faster exit mechanism for failed startups, which boosts investor confidence by reducing the risks associated with investing in new ventures," explained Jatin.
Moreover, by promoting a culture of innovation through partnerships with academic institutions and industry, along with competitive programs such as the National Startup Awards, the initiative boosts the profile and credibility of startups, rendering them more appealing to investors.
Jatin opines that the initiatives have created a more favorable environment for seed-stage investments by mitigating risks and improving the support infrastructure for start-ups across India.
Looking ahead, experts predict continued growth in seed funding, driven by sectors such as deep tech, fintech, and sustainability. With a diverse range of startups pushing the boundaries of innovation, the future of seed funding in India appears bright, promising a new wave of transformative ventures in the years to come.
