May 2024 has proven to be a challenging month for Indian startups seeking funding, as evidenced by the latest data from Venture Intelligence, an analytics firm. While there was a modest increase month-over-month, the overall investments in startups fell short of expectations. Indian startups raised a total of $812 million across 52 private equity and venture capital deals in May. This represents a notable 23.5% YoY decline in volume and a 20.3% YoY decline in the value of deals.
However, compared to the previous month, funding in Indian startups grew by 11.8% month-over-month in May.
The most notable aspect of May’s funding activity was the remarkable surge in late-stage investments. The total amount of late-stage funding more than tripled (207.4% YoY), from just $149 million in May 2023 to $458 million in May 2024. This mind-boggling increase in deal value occurred despite a 50% drop in the number of late-stage deals, dropping from 8 to just 4 during the same period.
This indicates that although fewer deals were made, the average deal size was significantly larger, reflecting targeted investments in high-potential companies.
Month-over-month, late-stage funding grew 11.7% in deal value, while there was a 60% decline in deal volume.
In May, investments of over $100 million were made in companies like e-commerce startup Meesho and AI startup Atlan, showcasing continued investor confidence in mature startups.
Other Key Metrics: Decline in Growth-Stage and Early-Stage Funding
In contrast to the late-stage bonanza, early and growth-stage funding witnessed significant dips.
- VC funding in early-stage startups, including pre-seed and seed-stage, attracted only 28 deals worth $95 million in May 2024, down from 39 deals worth $128 million in May 2023. That’s a notable decline of 28.2% YoY in volume and 25.8% YoY in value.
- The value of growth-stage deals, which experienced significant growth in April, sharply declined in May 2024. There was a substantial 65.1% YoY decline in VC investments in growth-stage startups, dropping from $743 million in May 2023 to $259 million in May 2024. Surprisingly, this decline occurred despite the number of deals remaining almost flat, with 21 deals in May 2023 and 20 deals in May 2024.
These funding trends suggest a strategic shift among investors. The decline in early and growth-stage investments points to increased caution and selectivity, possibly due to market uncertainties or a focus on achieving more secure returns.
Industry Experts Weigh In
Sateesh Andra, the founding partner and MD of seed-stage VC firm Endiya Partners, provided insightful commentary on the evolving dynamics of the startup ecosystem. He highlighted two key metrics: graduation rates, which measure the progression of companies from Series A to B and then to Series C, and the time taken to achieve these milestones.
In 2020, about 40% of Indian companies were able to make the leap from seed stage to Series A funding and another 35-37% from Series A to B. However, there has been a significant decline since then, with only about 15% of companies progressing through these stages in recent times. What’s particularly concerning is the increased time taken for these transitions, stretching from one-and-a-half years to two-and-a-half years. This indicates a pressing need to address this issue for the Indian startup ecosystem to evolve and thrive.
Even though the overall funding in Indian startups declined in May 2024, there are signs of a promising shift in investor sentiment and strategic adaptation within the ecosystem. Despite this downturn, innovative startups continue to attract attention and investment, indicating underlying confidence in the long-term potential of certain ventures.
