More than 150 investors, including Temasek, Singapore’s sovereign fund, and Khazanah, Malaysia’s sovereign wealth fund, convened at Mumbai’s luxurious Trident Oberoi hotel for the “Lift Off” summit organized by venture firm Lightspeed India Partners. The summit, held over two days, aimed to foster partnerships and facilitate the exchange of views, ideas, and investments among various key stakeholders in the industry.
The event, building on the success of the previous year, led to significant deals and networking opportunities, such as paving the way for Singapore sovereign fund GIC’s investment in business-to-business marketplace VeGrow. The positive atmosphere at this year’s event reflected India’s resurgence in startup funding over the past few months. However, it did not overshadow the lingering challenges faced by the industry.
Notable challenges included Byju’s seeking new capital through a rights issue, which would result in a drastic 99% reduction in its valuation, and the decline in market cap for Paytm following regulatory issues and market downturn.
Many late-stage and highly valued 2021 seed deal startups are struggling without follow-on funding. Additionally, skepticism has arisen among investors about the $20 billion in dry powder that Indian VCs are currently sitting on, leading to concerns about excess fundraising.
VC Fund Size and Market Opportunities
Lightspeed partner Bejul Somaia acknowledged the possibility of Indian VC firms over-raising and amassing more funds than can be responsibly deployed. He emphasized the challenges posed by the stark contrast between investment activity levels in 2023 compared to previous years and the need to align fund sizes with current market opportunities.
Lightspeed Venture Partners India, which had returned over $1 billion to LPs by mid-last year, exercised caution in response to the hyper-exuberance in 2021. Somaia expressed his apprehension about investment opportunities driven by high valuations and growth hype, emphasizing the importance of building durable companies.
Magicpin founder Anshoo Sharma, One Assist founder Gagan Maini with Lightspeed’s Bejul Somaia (Image: Lightspeed)
In recent years, several India-focused venture capital firms have raised substantial new funds, indicating a shift in strategies and approaches. Lightspeed India’s recent fund, sized at the lower end compared to peers, reflects a deliberate choice aimed at avoiding strategy drift due to excess capital.
India in the Global AI Race
Despite the surge in AI progress in Western hubs, India lags in foundational research, particularly in large language models. Lightspeed’s perspective on AI innovation in India underscored the need for infrastructure and tooling development, with the potential for targeted AI opportunities to emerge locally.
The Patient Capital
Lightspeed’s Anuj Bhargava and Rahul Taneja with Darwinbox founder Jayant Paleti. (Image: Lightspeed)
Investors in India are cautious about late-stage startups pushing for up-rounds, emphasizing the need to align financing with public markets. The emergence of patient capital from sovereign funds, pension funds, and private equity growth arms is expected to address funding gaps and sustain growth.
Despite the tightening of late-stage funding, opportunities remain promising in India’s early-stage ecosystem, with several prominent venture capital firms engaging in significant early-stage deals in recent months.
