Ongoing funding winter is a blessing in disguise for India’s start-up ecosystem: Kunal Bahl

After a period of free-flowing capital in the country’s startup ecosystem, the funds have begun to dry up since late-2022 and for good. According Kunal Bahl, co-founder of Acevector Group & Titan Capital, the ongoing funding winter could well prove to be beneficial for the country’s start-ups.

“The (ongoing) funding winter is a blessing in disguise. Over the last few years, a lot of money has come into the market - creating a lot of value as well as some fat. With this funding crunch now, I believe, the fat will get melted - resulting in a much fitter start-up ecosystem in India," said Bahl at the Business Today India @ 100 event on Saturday.

Since 2018, funding from overseas investors like private equities (PEs) and venture capitalists (VCs) have poured in India. After steadily growing for two years, overseas funding grew to close to $14 billion in 2018. Even though the COVID-19 pandemic led to widespread disruptions impacting majority of the sectors, funding for start-up continued to flow. In fact, in 2021 start-up funding surged to a record $37 billion.

That, however, begun to change since mid-2022 when major economies like the USA initiated interest rate hikes, resulting in key investors reducing their investments in emerging markets like India. In January-July 2023 period, fundings fell by a steep 77 per cent to $4.4 billion from $19.5 billion during the same period last year. This fall was on a lower base of 2022, when funds from VC and PEs had already recorded a 33 per cent fall over 2021.

According to Bahl, who had been a successful start-up founder (of Snapdeal), says that many Indian startups have exerted impressive growth in the recent past with their ability scale. Bahl’s investment arms that have put in money in now successful startups like Mama Earth and Beardo, are prime examples of this model. “When they started they were trying to dominate a laughably small market. But once they tasted success in their initial missions, they quickly scaled them up and multiplied business manifolds”, he said.