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India has a substantial amount of dry capital, and companies can still raise funds even during a funding slowdown in the Indian startup ecosystem, said experts at the India Fintech Awards (IFTA) 2023 panel in Mumbai.
"There is no funding winter. If you look historically, 2023 as opposed to 2015, 2013 or 2009, we are sitting on the biggest dry powder ever. Dry powder refers to capital that is yet to be deployed. This is the first time we have so much dry capital, which is coming from India. The number of companies emerging and their ability to raise funds has never been high," said Shashank Randev, founder VC at 100X.VC, a venture capital firm.
The panel, which included founders, managing partners and managers at venture capital firms and a fintech fund, was in conversation with CNBC Awaaz.
Vikram Gupta, founder and managing partner, IvyCap Ventures, a venture capital firm, concurs with Randev's view.
"There is a lot of dry powder sitting in the system," he said.
Gupta explained that his firm is deploying part of his Rs 2,000 crore-sized fund to fintechs.
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"We are currently deploying from our Rs 2,000 crore size fund. We have already deployed Rs 450 crore in the past twelve months, out of which Rs 130 crore have been deployed into fintechs. Going forward, in the next five to seven years, you will see at least 500 additional unicorns. I would say almost 20 per cent of those should be in fintech," he said in an interaction with Business Standard.
Fintechs have been among the five best-performing sectors in terms of funding since 2018, with an exception in 2020 when it came sixth. Fintech funding has increased from just $666 million across 258 deals in 2016 to $5.83 billion across 469 deals in 2022, data from market intelligence platform Tracxn shows.
Of the 86,296 startups active in India, 8,098 are in the fintech space. These startups have almost doubled in number from 4,198 in 2016.
The fintech sector has remained resilient in an environment of regulatory certainty, increasing scale and rising digital payments. It contributed more than 84 per cent of the total funds raised by Indian startups in H1 2023, Tracxn data shows.
Vikram Chachra, founding partner, 8i Ventures, an early-stage venture capital fund, stressed the larger opportunity that fintech offers, which has made the sector lucrative.
"The single largest digital shift in the last four years has been in fintech. We have gone from a 70 per cent cash economy in terms of the retail economy to more than 70 per cent digital. If you see e-commerce, the monthly transacting user base is around 30 million. For digital payments, it is approaching 300 million. It's 10 times larger. The next 250-300 million people will come to digital payments because they are getting credit on UPI. So ultimately, you have 600 million people who will be transacting," Chachra said.
Additionally, he explained that there was a mismatch between the valuation expectations of founders and investors.
"There are many companies that are overvalued in the late stage. Investors are asking to reduce the valuation of these companies. So, there's a push and pull between these companies and investors," Chachra said.
"Early-stage founders were of the view that they should get the valuations which they were getting in 2022. Over the last three or four months, expectations have come down. Now, we see openness in terms of asking about reasonable valuations," said Mehekka Oberoi, fund manager, fintech IIFL.
