India's economy and financial markets are thriving, but its startups aren't. Investors, who were earlier eager to invest billions of dollars in potential Indian technology businesses, are now taking a more cautious approach and issuing smaller checks. They've been burned by the humiliating fall from grace - and valuations - of once-marquee startup enterprises or market debutants in recent years, such as digital payments provider Paytm.
Karthik Reddy, Managing Partner at India's Blume Ventures, which has invested in hundreds of early-stage firms, said his company aims to conduct approximately eight new deals this year, compared to 12 last year. Rather than spreading capital across multiple companies, it will invest larger sums in firms in which it is confident.
"When your existing portfolio isn't performing well, it's difficult to be motivated to do more," he told Reuters.
Investors looking at Indian startups are much more focused on potential profitability, less interested in tech companies, and more interested in stable brick-and-mortar businesses, according to Reuters interviews with six executives at foreign and domestic investment firms, as well as two CEOs at startups.
India's startups raised approximately $900 million in January and February, indicating another weak year following a six-year low of $8 billion in 2023, according to Venture Intelligence statistics.
That is a far cry from the record-breaking $36 billion raised in 2021, or even the $24 billion in 2022. In comparison, India's stock market has risen 19% since the beginning of last year, reaching a record high this month.
According to CBInsights statistics, Indian companies had a two-thirds reduction in investment last year, which was significantly steeper than the 36% drop for US startups and the 42% drop for Chinese startups.
Significantly, Blume's next fund is expected to be the same size or less than its previous one, which collected $290 million - an unusual move for a major Indian venture capital firm.
According to a Reuters investigation, India's ten largest venture capital companies have consistently raised larger money over the last decade. "In this setting. "I don't believe we can make significant returns with more money," Reddy added.
