Venture capital funds that ET spoke to said lean stock market gains in the second half of 2024 could have a direct impact on seed funding as investable capital saw a downward trend. However, VCs have called 2024 the year of learning and “market correction” that will lead to building of a robust startup ecosystem.
“Pre-IPO and late-stage funding rounds have become increasingly attractive, offering shorter paths to liquidity and stronger returns,” said Anirudh A Damani, managing partner of ArthaVenture Fund. “The lion’s share of funding has naturally gravitated toward these segments, highlighting a preference for lower-risk investments.”
ArthaVenture Fund has invested in startups like Agnikul, PiggyRide, and Big Bang Food Tech.
Startups raised around $1.9 billion in seed-funding in both 2021 and 2022, while in 2020, they secured $1.3 billion.
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According to the Tracxn report, Venture Catalysts led the segment with 39 deals in 2024, registering a 95% surgeIn contrast, Z Nation Lab and Blume Ventures saw declines of 17% and 30%, respectively, closing 19 and 16 deals.
Accel’s founding partner Prashanth Prakash, however, said though the numbers have seen a dip, the overall trend remained positive this year. “The number of companies being seeded has remained roughly the same. What’s changed is the round sizes, which are smaller due to a more realistic valuation environment,” he said, adding that companies are now raising more appropriate seed rounds for their stage, which is a positive outlook.
Prakash said he was bullish that in 2025, India will see “as many or even more seed-stage companies because of the growing number of new seed funds that have emerged in recent years with more active participation from family offices and angels.”
VC’s retreat
Gagan Goyal, general partner at India Quotient, believes that the decline in seed funding is largely due to new VCs pulling back. “The new entrants that built micro-VC funds, raising $10-20 million during 2021 and 2022 to invest in seed funding in the following years realised that this is not an easy game. Some of these ‘tourist VCs’, as we call them, started feeling the heat and either reduced their activity or exited altogether,” he said.
Institutional investors who have been in the market for over a decade haven’t slowed down, Goyal said.
India Quotient invests in pre-seed and seed stage startups and this year funded eight companies.
Expressing similar views, Neeraj Tyagi, CEO of We Founder Circle, said, “The disappointment isn’t the slight drop in seed funding numbers; it’s that we expected a bounce-back this year, but that didn’t happen. However, the silver lining is the emergence of a new set of investors (tier II/ III cities) and more realistic valuations, which bode well for the long term.”
He added that investors are taking more time to analyse companies. “The fundraising timeline has increased from three to four months to almost six to eight months. This reflects a more mature and data-driven decision-making process,” Tyagi said.
Deep-tech spur
Contrary to seed-funding numbers, deep-tech funding saw growth by 11% of the total deals done. The sector’s funding grew over five times in 2020-24 period versus 2015-19 period.
“We witnessed over $5.5B funding in deep-tech startups between 2020-24. Further in deep-tech Series A & above deal count grew three times since 2019, which is an encouraging sign for an evolving deep-tech investment ecosystem,” Vishesh Rajaram, Managing Partner at Speciale Invest said, adding that the investments included energy and electric mobility, semiconductors, life-sciences and health, space-tech, advance materials and drones.
Overall, late-stage funding and early-stage startups performed better in 2024. The former witnessed a total funding of $7.13 billion in 2024, an increase of 12.09% compared to $6.36 billion raised in 2023. Early-stage funds saw a total funding of $3.16 billion in 2024, an increase of 2.09% compared to $3.09 billion raised in 2023.
