Indian startups that collectively bagged as much as $38.5 billion in venture capital (VC) investments in 2021, will experience slowdown in funding in the coming months. Not to say that the capital is not available. Sai Deo, associate partner at Bain & Company’s private equity practice, tells Fortune India that both domestic and global funds having India-focused investment vehicles have raised considerable capital over the past years which will need to be deployed over the course of a couple of years or so. However, the deployment of capital is going to be ‘cautious’ and the pace of deal making will be a lot more measured.

“Deployment of capital may not be at the speed seen in 2021,” says Deo. And there are sufficient reasons behind this guarded investor rationale that is shaping up — the easy liquidity regime seen in the aftermath of Covid-19 is gradually fading; the U.S. Federal Reserve has already hiked interest rates by a quarter of a percentage point, the first since 2018 while hinting at six more hikes this year. Compression of the market capitalisation of publicly listed tech companies in the US and in markets across the globe has had some “degree of trickle down impact on the tech listings in the Indian bourses,” says Deo.

Experts point out that SaaS multiples (globally) have come down by 20% or so. “Public market trends indicate some headwinds for VC investments in 2022...,” analysts said in the report. The ongoing geopolitical tensions only add to the uncertainty, hurting investor sentiment. “All the factors put together will impact Indian growth and late stage startup equity deals in the next one or two years,” says Deo.

Closer home, there are some other factors at play which have the potential to cloud the growth of the startup ecosystem. “...stricter IPO (initial public offering) norms are expected from SEBI, regulatory uncertainty for a few sectors is likely to continue (e.g., online gaming and fintech), and a competitive talent market will continue to strain the ecosystem,” analysts at Bain & Company said in a report published recently.

Investors are broadly expected to back startups with sound business models, better founding teams and proven unit economics, say analysts. This essentially could mean that on the late stage side (fairly established/late stage startups), big players are likely to corner the bulk of the available capital. “Capital will concentrate a little bit towards market leaders who have already proven their ability to grow, scale and scale at a measured burn rate... this will lead to even larger ticket sizes in selective assets,” says Deo.

This trend has been very much palpable in the edtech segment at least, where Byju’s continue to lead in terms of funding, having amassed over $2 billion from investors since the onset of the pandemic.

Despite headwinds, emerging sectors like Web3, crypto and blockchain-based technologies, healthtech and agritech are likely to see investor traction. An unstable macro environment sure poses risk to the startup growth momentum but analysts continue to bet on the overall potential of the ecosystem. A slew of fresh entrepreneurs and companies are trying to build new business models, devise new solutions to cater to the masses. A lot of startups are attempting to address issues specific to tier one, two, three cities or what experts call the ‘Bharat problem’.

“These problems are local in nature and do not necessarily have global equivalents, but the business models they are creating could later have some applicability globally. That will continue to be a focus for early stage startups and such ideas will continue to see investor interest,” they say.

The wider investor landscape has also evolved. 2021, for instance, saw newer investors making significant inroads — tier one global VCs such as TCV and Dragoneer Investment Group made several large investments. Domestic VCs like 3one4 Capital, Gemba Capital and Together Fund scaled presence while sovereign funds such as ADQ and QIA made direct investments into the market as late-stage investors.

“Several sector-focused funds increasingly doubled down. Finally, traditional PE funds also stepped up focus on growth equity deals, with the marquee deals being the Warburg Pincus-led investment in The Good Glamm Group, ChrysCapital’s investment round in Dream11, and the KKR-led investment in Lenskart,” analysts said in the report.

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