Funding climate in India could look up after next Union Budget, says Orios VP’s Anup Jain

India is uniquely placed in the global funding ecosystem at the moment. While headlines will tell you that India was the second most-funded geography (after the US) in Q1 2023 (Jan-March), this period saw a 63 per cent decline in funding over last year (Q1 2022) and a 75 per cent decline since the last quarter Q4 2022 (Oct-Dec).

Add to that, India’s last unicorn happened in September 2022, which means this is one of the longest lean periods the country has gone through without a new billion-dollar startup. 

The question is: How much longer?

Various investors will give you different timelines. Some say things will get worse before it gets better. While others say overfunding is a dangerous trend and should not come back even in fair-weather markets. 

Pragmatically, India’s funding climate might not look up before 2024 (or the last quarter of FY24), according to Anup Jain, Managing Partner of Orios Venture Partners (Orios VP). 

Jain told Business Today exclusively, “Things will tend to look up after the Union Budget [for FY25] assuming there’s no change in the global economic situation. I expect that the second half of 2024 should be different from what we are seeing right now.”

The investor, however, cautions that high cash-burn businesses like 10-minute grocery delivery among others might still find it tough to raise funding. “These are essentially new concepts that are dependent upon a large amount of discounts and subsidies to drive the creation of consumer categories and habits,” Jain explained.

Orios VP has backed several consumer-facing startups across categories, including Pharmeasy, Country Delight, ixigo, GoMechanic (which recently ran into trouble before it was acquired), Zostel, Mobikwik, Zupee, and so on. Some of its other key bets have been in the areas of carbon credits (Varaha), green mobility (Battery Smart), education (NxtWave), healthcare (BeatO, Elda Health), agritech (Krishify, Unnati), AI (Intelligence Node), creator economy (Bolo Live) etc.

Orios VP typically participates in Pre series A-Series C rounds of companies that have achieved product market-fit and offers them a $2-2.5 million cheque. “We are sector-agnostic and we’ve been investing despite the overall funding slowdown,” Jain shared. 

Any big misses for the fund so far? “I think we passed on food delivery many years ago and missed some of the early rounds in food-tech companies. That space has actually become quite big,” he added. 

Changing VC ecosystem in India

What does the growing presence of global funds in India and the rising share of domestic debt funds mean for the early-stage VCs here?

Jain is unfazed and he believes there’s space for all. “The number of global funds in the early-stage has increased over the last couple of years given the attractiveness of the Indian startup ecosystem and the largeness of the market as well as the macroeconomics being not in favor of China,” he said.

But the VC industry in India has matured and become more founder-friendly over the years. Not only are there more global funds, there are new (and diverse) Indian funds too.

And today, Jain’s advice to portfolio founders whose companies have short runways is to "slow down growth and extend runways" until they can get funding again, after which more investments in growth can be made. “Cash burn needs to be reduced significantly and growth has to be sacrificed,” according to the investor.

Given the extended funding slowdown, Orios VP further believes that corporates and strategic investors will also start taking advantage of the attractive valuations right now to pick up assets “which are adjacent and strategic to their businesses”.  

What about IPOs though? After all the hype of 2021, following the funding boom, there’s been a sobering last year with several startups withdrawing their DRHPs. Are IPOs of Indian startups being seen the same way as a few years ago?

“IPOs will remain the most preferred events for investors,” asserted Jain, “However, the advice would be to get companies to a sustainable and profitable level and then go for listing to avoid the lessons learned by some of the early startups.”