Large funding rounds over $100 million see resurgence among Indian startups

Investors focus on profitable growth as late-stage deals rebound in 2024

After a prolonged period of declining late-stage investments among Indian startups, large funding rounds valued at over $100 million are showing signs of a resurgence as investors are betting big on companies that are exhibiting "growth with a clear path to profitability."

In 2024 so far, there have been 13 funding rounds valued over $100 million, including those raised by Zepto, Rapido, Lenskart, Flipkart, Meesho, and Pharmeasy, among others, according to data from Tracxn—a market intelligence platform.

While this is less than the 14 such rounds raised during the same period in 2023, the deal sizes this year are bigger. Startups have cumulatively raised as much as $3.3 billion in 2024 year-to-date (YTD) across the 13 rounds, versus $3 billion the previous year from more rounds.

In parallel, the frequency of these big-ticket deals also seems to be on an upward trend. The number of deals has increased steadily on a sequential basis, from three $100+ million rounds in the fourth quarter (Q4) of 2023, to four deals in Q1 2024, and five in Q2, Tracxn data showed.

According to Ratna Mehta, chief executive officer and managing partner at growth-stage venture fund Fundalogical Ventures, India-focused venture capital players are sitting on large pools of dry powder (unallocated capital) that is ready to be deployed, which is playing an important role.

Moreover, there is a “focus on profitable growth for late-stage ventures, which in turn will drive startups towards exploring the public markets. Recent history of new-age companies seeing successful IPOs is driving investor confidence in late-stage IPOs,” she said.

Macroeconomic factors, such as India’s strong economic growth projections, are also driving bullishness among investors.

“Many investors are betting on the ‘India story,’ choosing to back companies that show robust growth trajectories and a clear path to profitability,” said Ankur Bansal, co-founder and director, Blacksoil—a venture debt platform.

Large rounds had hit the skids in India over the past couple of years, in line with the so-called funding winter, where startups were unable to raise capital. As such, startup funding cumulatively fell to a seven-year low in 2023, falling 72 per cent year-on-year to $7 billion in 2023 compared to $25 billion in 2022, according to data from Tracxn.

The largest contributor to the total quantum of startup funding comes from late-stage rounds, which declined by the largest margin during the funding winter. With the resurgence in big-ticket deals, late-stage funding has also been showing signs of recovery.

“Pre-funding winter, there was a lot of fear of missing out (FOMO) driving large rounds—quick funding with limited diligence was being done and crazy valuations. This has seen some sanity, and the current deals are taking time; diligence is much more robust, and, at least in a majority of cases, valuations are not crazy,” said Mehta.

According to investors, large funding rounds were previously often characterised by investments in high-growth companies, even if they came with high burn rates and uncertain paths to profitability.

“In contrast, the current wave of investments is focused on a common theme of companies that are growing and have a clear strategy towards achieving profitability,” said Bansal.

Going forward, the record amounts of dry powder available for the ecosystem today, coupled with India’s strong macroeconomic growth, have set the stage for this funding momentum to continue. Investors say that large deals will continue to materialise in the coming quarters, though capital will not be deployed at the frenetic pace it used to a few years ago.

“This economic momentum provides ample opportunities for investors to support new-age companies in India. There are already discussions in the market about potential future investments in late-stage growth companies,” said Bansal.