WaterBridge Ventures' Manish Kheterpal on IPO Boom, Mid-Stage Struggles, and 'Bharat Wapsi' Phenomenon The fundraising landscape in 2024-25 marks a shift from the era of "easy money" to a more strategic phase, focusing on profitability, larger deals, and changing investor behaviors within the startup ecosystem.

The Indian startup ecosystem is experiencing a significant revival in venture capital funding, with an impressive 53.1% surge in the first eight months of 2024 compared to the previous year.

According to a research report by GlobalData, Indian startups raised USD 7.5 billion from January to August 2024, up from USD 4.9 billion during the same period in 2023. This revitalization in funding not only reflects an increase in the total amount raised but also points to a shift in the size and scope of the deals being made.

During this eight-month period, 780 venture capital deals were executed, a notable increase from 742 deals recorded the previous year. This uptick signals a growing appetite for investment in Indian startups.

Insights on the current fundraising landscape were shared by Manish Kheterpal, Managing Partner at WaterBridge Ventures, during his keynote address at the BIZ Experiences 2024 Summit in Delhi. The address provided a deep dive into the shifts and trends in the venture capital market.

Kheterpal noted the shift that has occurred since the 2021 venture capital boom. "The topic of whether we are at the end of the easy money era is a moot point—this new chapter in fundraising has already begun. From the USD 35 billion peak of 2021, we're now looking at USD 8-10 billion a year, a clear sign that the landscape has fundamentally changed," he said.

While venture funding may be seeing a decline, Kheterpal pointed out the resilience of India's public markets, which have thrived despite private market challenges. "India's public market capitalization stands at nearly USD 5.5 trillion, positioning it second only to the United States in terms of market cap to GDP ratio," Kheterpal remarked. This growth highlights a dichotomy in India's financial markets, where public markets flourish even as private markets experience a downturn.

Kheterpal explained that the startup ecosystem, over the past two years, has contributed to creating USD 110 billion in new market capitalization, driven largely by initial public offerings (IPOs). He attributed much of this success to a shift in IPO behavior. "We've seen a significant shift in IPO behavior, with domestic institutional capital now underwriting the majority of offerings. This is a stark contrast to just a few years ago when foreign investments dominated the IPO space," he noted.

Although mid-stage fundraising has become more challenging, Kheterpal highlighted that there remains significant capital waiting to be deployed. "There's about USD 10-12 billion in dry powder committed to India, so while mid-stage fundraising is challenging, there's still capital waiting to be deployed. We're witnessing a paradox—quick commerce players like Zepto raising a billion dollars in two months, even as other sectors struggle to secure Series A and B funding," he said, underscoring the mixed signals within the market.

He also raised concerns about the potential for a bubble in the public markets, especially given the exuberance surrounding IPOs. However, Kheterpal emphasized that the increase in domestic institutional capital backing IPOs represented a positive structural shift.

Kheterpal also discussed a noticeable change in investor behavior with a shift from focusing solely on high growth to seeking profitability. "The focus has moved from merely achieving high growth to achieving profitability. This evolution reflects a more cautious approach from investors, who are now more discerning about where to allocate their funds," he explained.

Another emerging trend that Kheterpal touched upon was the "Bharat Wapsi" phenomenon. "The 'Bharat Wapsi' phenomenon is real—8,000 startups have returned to India in the past year. While this reflects a nationalistic trend, it's crucial to remember that India's domestic capital still has limitations, and not every business model fits the Indian market," he cautioned. This trend signals both the appeal and the challenges of scaling startups within the Indian market.

In conclusion, Kheterpal highlighted the uniqueness of India's startup ecosystem, noting that "70% of the unicorns created in the past two years have developed India-specific business models. These are solutions tailored to our local problems, with no easy parallels in the US or China." He emphasised that India is developing innovative models that cater specifically to its consumer base, positioning the country as a distinctive player in the global venture capital landscape.

As Kheterpal outlined, while the fundraising environment may have shifted, India's startup ecosystem continues to grow and innovate, driven by domestic factors and India-specific solutions that are attracting capital and attention from around the world.