Startup Outlook 2024: IAN co-founder Padmaja Ruparel says funding will rebound but not reach 2021 levels

The Indian startup ecosystem experienced a challenging 2023 with funding hitting a seven-year low at about $8 billion, witnessing a stark 65 percent decline from the previous year's $25 billion, according to Traxcn.

The prolonged funding winter resulted in consecutive quarterly declines, with Q3 2023 being the worst in five years. A significant drop in late-stage funding was the primary contributor, causing India to slip from the 4th to the 5th position among the highest-funded global geographies.

Despite the overall slowdown, certain sectors like AI, deeptech, environment, climate, and Spacetech gained traction, with space-tech achieving a record year, raising over $120 million in 2023 due to the government's emphasis on privatization.

This funding slump coincided with a flurry of fundraising activities by investors. As of the close of 2023, an estimated $20 billion was waiting to be deployed. Prominent investors, including Peak XV, WestBridge Capital, Elevation Capital, and Accel, secured India-dedicated capital ranging from $2 billion to half a million dollars.

Additionally, domestic investors strengthened their positions through successful fundraising or fund size increases in the period between 2022 and 2023. Early-stage investor Chiratae Ventures finalized the closure of its 'Growth Fund I' at Rs 1,001 crore. Epiq Capital closed its second India-dedicated fund at $235 million, 3one4 Capital raised $200 million, and Arkam Ventures launched a $180 million fund.

In an exclusive conversation, Padmaja Ruparel, Co-founder of IAN, disclosed key insights and strategic goals for 2024 as the seed and early-stage investment platform, IAN's Alpha Fund, saw its first close at an impressive Rs 355 crore.

Shruti Malhotra, CNBC-TV18: How do you anticipate 2024 unfolding for startups and investors? When do you see clarity emerging, and what notable developments are on the horizon?

Padmaja Ruparel, IAN: 2024 will be a better year than the last one. The anomalies of business models, like companies with high revenues and negative EBITDA, have driven home the key point that businesses without profits don’t work. Even investors have shed FOMO and doubled down on diligence. Both these have led to startups building well-governed businesses and investors who seek value, rather than valuation. So, fundraising should rebound though not to the dizzy heights of 2021. Technology will remain the mainstay, bringing innovation in sectors like manufacturing, and hardware, semiconductors should see a big fillip.

 

PADMAJA RUPAREL, IAN FUND

Q: Any 3-5 startups and sectors catching your attention in 2024?

Padmaja Ruparel, IAN: Sectors on the radar include spacetech, cybersecurity, healthtech and biotech. The startups I like are Dhruva Space, Zypp, WebEngage, Wow Momo, Manastu, Seringen, Ahammune, Yellowsky and Noccarc.

Q: Share your thoughts on emerging trends and potential disruptors.

Padmaja Ruparel, IAN: Technology being driven from Tier 2, 3 cities is interesting. The focus on innovation solving real problems can disrupt markets both in India and globally. The focus on IP-driven startups is likely to increase as India moves into value creation mode and not just scaling.

IPOs in 2024: Capturing Interest and Charting a New Course

Q: Are there specific IPOs in 2024 that have captured your interest? What factors make these IPOs stand out for you?

Padmaja Ruparel, IAN: Apart from IPO companies necessarily driven by top lines and positive bottom lines, it's important that they improve lives. 2024 could well see the early discussions for IPOs to be enabled for IP-led/non-revenue-earning companies (such companies do list in the US, Israel, and other countries, and India should also enable them to go public). This will ensure that the IP is retained in the country, investors can participate in high-value innovation, and we move faster towards a $5 trillion economy.

 

PADMAJA RUPAREL, IAN FUND

Q: What's your perspective on the future of Artificial Intelligence (AI)? How do you see it expanding? And, in your view, can any business remain unaffected by the impact of AI?

Padmaja Ruparel, IAN: AI, for me, is augmented intelligence. Smart applications of AI can enable high growth and value for companies. Gradually but surely (and perhaps faster than we expect), AI can change the way businesses are run and provide strategic inputs. It will permeate practically every sector. But it does need to be embedded carefully. AI will also drive massive upskilling of talent, and this could then improve productivity effectively.

Q: Could you share insights into your current fund size and the areas where you are strategically allocating capital?

Padmaja Ruparel, IAN: IAN Alpha Fund, a Rs 1000 crore fund, has just completed its first close at a slightly higher amount than the entire fund size of our previous fund. It has started to invest, and the focus is on innovation solving real problems. Sectors like Healthtech, biotech, fintech, manufacturing tech, space-tech, deep tech, cybersecurity, edutech, agritech, and consumer look good. The fund is an early-stage fund building a well-risk-mitigated portfolio across India (including tier 2 & 3 cities), women entrepreneurs, and some overseas firms. It will invest in well-curated & mentored IAN portfolio companies as well as new companies and actively explore co-investment opportunities.