Bullish Outlook: Funding and growth for Indian startups may slow in 2022

India’s technology startups had its momentum in 2021 with capital gains from private and public markets. The year witnessed some high-profile companies, including Zomato and Paytm, making stock market debuts.

The Indian tech startups managed to raise a record amount of capital from private equity and venture capital firms. Investors, as per AVCJ – a private equity and venture capital intelligence provider, pumped in $28.2 billion worth of tech investments this year across 779 deals. It marked a 200% jump in capital compared with the $9.4 billion invested in 2020.

Rajan Anandan, managing director at Sequoia Capital India, said the venture firm is very bullish on the country’s technology ecosystem and its ability to generate long-term value for stakeholders. He said Sequoia Capital India saw eight portfolio companies make their stock markets debuts in 2021. “The success of companies in both domestic and international exchanges has definitely led to increased interest from investors across the world. It has validated the fact that large companies can be built from this region and create significant shareholder value.” Anandan said that with several promising IPOs lined up for 2022, the firm expects this trend to continue.

However, investors’ reaction to India’s top tech IPOs varies.  Zomato shares made a stellar debut and are up about 5.44% from their first day of trading on July 23, while Paytm is down more than 13% from its November 18 debut. Drawing cards from Paytm’s poor response, Mobikwik delayed its IPO.

Nikhil Kamath, co-founder of Zerodha, believes there will be appetite for future IPOs. He says the bigger question would be how those companies would fare in the longer term. “Many of the tech startups, including some of those that have gone public, remain overvalued. Majority of these companies are not profitable and they don’t look like they will be in the next four to five years, so it’s a bit hard to justify the valuation.”

Sandeep Naik, head of India and Southeast Asia at General Atlantic, says investors should separate the company’s valuation, which is determined by the public market, and its fundamentals. Naik highlighted that over the past two years, early stage and growth-stage investors have made a lot of money in India. This has been partly driven by exits, which allowed them to pump additional capital into India’s tech ecosystem and help startups grow.

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“The last 18 to 24 months, you have seen the number of IPOs that are happening, the companies in the IPO pipeline, the way companies have traded and they have come out, which gives you a great validation that the global capital markets are looking at our region as one of the most attractive regions to invest in growth,” Naik said.

Amit Anand, founding partner at Jungle Ventures, believes the pace of fundraising and growth is likely to slow down in 2022. “That’s because there was a lot of pent-up demand this year around funding rounds that were scheduled to happen in 2020, but were postponed because of COVID-19 pandemic.” Anand explained that if all the fundraisings that have happened this year and spread it out across 2022 and 2021, the picture looks different.

But it still shows that India is a growing market.