Over 150 buyers, together with Singapore’s sovereign fund Temasek and Malaysia’s Khazanah, gathered at Mumbai’s five-star Trident Oberoi resort on a current Friday for enterprise agency Lightspeed India Companions’ “Elevate Off” summit.

The 2-day occasion goals to spark partnerships by enabling “in a brief window, many views, concepts and investments to be shared between nC2 connections (each permutation and mixture),” described Karthik Reddy, co-founder of Blume Ventures.

The occasion builds on the success of final yr’s inaugural Elevate Off, which helped spur offers and networking, together with paving the best way for Singapore sovereign fund GIC’s funding in business-to-business market VeGrow later within the yr.

The upbeat environment this yr mirrored India’s rebound in startup funding over the previous three to 4 months. However the lavish setting couldn’t masks urgent questions nonetheless going through the trade.

Byju’s, as soon as India’s most beneficial startup at $22 billion valuation, is searching for new capital by way of a rights problem that may slash its valuation by a whopping 99%. Paytm, as soon as the poster little one of India’s startup goals that went public at a $20 billion valuation in 2021, has seen its market cap shrivel under $3 billion amid the tech market carnage and regulatory upset.

Many late-stage startups stay wedded to their peak 2021 valuations. And plenty of extremely valued 2021 seed offers are floundering with out follow-on funding. On the identical time, Indian VCs are at present sitting on a file $20 billion in dry powder, elevating skepticism amongst many buyers about extra fundraising.

On VC fund measurement

“Sitting right here in early 2024, with the good thing about observing 2023 funding exercise ranges in addition to the tempo of start-up creation, I feel the reply is sure,” responded Lightspeed associate Bejul Somaia when requested whether or not Indian VC corporations have over-raised, amassing extra funds than they’ll responsibly deploy.

“The present classic of funds had been raised in 2021/2022, when exercise ranges and funding {dollars} had been considerably larger than 2023. In 2021, $33 billion of enterprise capital (early and late stage) was invested in India. In 2023, this quantity was $9 billion. So we now have to take into account that funds raised in 2021/2022 had been sized for a possibility that was reflective of that point,” he defined.

“For those who take a look at the variety of investments, the quantity was 2,200 in 2021 and roughly half of that in 2023. Now that doesn’t imply the market is not going to speed up once more in two-three years….market cycles do occur. So 2023 can be not essentially reflective of the enterprise market alternative in India,” he added.

Lightspeed Enterprise Companions India — which had returned over $1 billion to LPs by mid-last yr — was unusually restrained throughout 2021’s interval of hyper-exuberance when offers closed in days with inflated valuations and unreasonable founder-friendly phrases – a frenzy Somaia hopes the market by no means revisits.

“Environments like 2021 make me fairly anxious. Funding alternatives transfer quick and at excessive costs…..and progress, hype and salesmanship begin mattering greater than constructing sturdy corporations. Whilst our mark-to-market efficiency was wanting unbelievable, that’s maybe one of many few years at Lightspeed after I had essentially the most anxiousness. On one hand, these valuations had been market-determined, on the opposite they didn’t jive with our evaluation of the enterprise,” he stated.

“So how have you learnt who is true? Does the market know one thing we don’t? Happily we stayed with our convictions for essentially the most half by way of that point.”

Magicpin founder Anshoo Sharma, One Help founder Gagan Maini with Lightspeed’s Bejul Somaia (Picture: Lightspeed)

Over the previous three years, many India-focused enterprise capital corporations have raised substantial new funds that dwarf their earlier automobiles – Peak XV has amassed $2.5 billion for the area throughout current closes, whereas Nexus Enterprise Companions pulled in $700 million, Elevation raised $670 million, and Accel garnered $650 million. Lightspeed, which started investing in India greater than 15 years in the past, and later fashioned devoted funds for the nation, unveiled a $500 million fund, its fourth for India, in 2022.

“With respect to Lightspeed India’s most up-to-date fund, I imagine that’s sized on the decrease finish of our friends. This sizing is a deliberate alternative,” stated Somaia. “That stated, perhaps our friends see a possibility that we don’t, or have a extra expansive funding technique – and we’re all the time curious to be taught. However we need to guard in opposition to the danger of an excessive amount of capital leading to technique drift.”

Somaia stated he anticipates many corporations, together with Lightspeed, to take three to 4 years to deploy their funds as an alternative of the everyday cycle of two and a half years to 3. “We have to ship top-tier returns to our LPs, who’ve change into accustomed to a sure form of return from a agency like Lightspeed. We are going to by no means compromise that to place cash to work,” he stated.

India within the international AI race

With AI progress surging in Western hubs, India is lagging in foundational analysis as only a few of its startups try to construct massive language fashions.

Lightspeed sees parallels to the agency’s early funding in Indian Vitality Trade – constructing an influence buying and selling platform whose analog didn’t exist in Western markets. “My perspective is that proper now we’re at a part with AI the place a number of the infrastructure, and a few tooling, is being constructed. That is primarily occurring in Silicon Valley. It has truly been a reminder that the focus of technical expertise in Silicon Valley is unparalleled,” stated Somaia.

“Within the time that we now have been investing in India, we now have noticed restricted core technical infrastructure innovation. A lot of the alternative tends to be on the utility layer – for shopper and enterprise. There are a lot of causes for this, together with market dynamics and the investor neighborhood, the place we now have few technically-strong buyers…..so it’s a little bit of hen and egg,” he added.

Hemant Mohapatra, a associate at Lightspeed, focuses on deeptech and has backed startups like Rephrase, one of many earliest generative AI startups, and massive language mannequin AI startup Sarvam.

Mohapatra agreed that entry to top-tier AI expertise is constrained globally. However just like the cloud computing shakeout, he predicted consolidation round a number of AI expertise and enterprise paradigms as soon as present hype subsides. Given India’s engineering bench power, focused AI alternatives may nonetheless emerge regionally even when Silicon Valley retains its normal innovator dominance, he stated.

The affected person capital

Lightspeed’s Anuj Bhargava and Rahul Taneja with Darwinbox founder Jayant Paleti. (Picture: Lightspeed)

A priority held by many buyers in India is that a number of late-stage startups proceed pushing for up-rounds, exhausting their runways earlier than accepting post-downturn realities.

Anuj Bhargava, Lightspeed MD and Head of India Company Growth, advised TechCrunch he sees progress in the direction of alignment with the general public markets. “I feel that is the yr the place the financing that may occur might be in additional sync with the general public markets. For progress corporations, the personal markets have been sluggish. However for the names which have actually improved their PnLs, have minimize the burns and are on sustainable unit economics, I feel the general public markets supply a fantastic alternative,” he stated.

India has additionally attracted rising sovereign fund curiosity over the previous three years at a scale it by no means earlier than, he stated, including he was optimistic that they’ll put money into many late-stage startups. “We had a number of funds not based mostly in India however investing in India due to the chance the nation provided to them outdoors their very own. A number of corporations ended up elevating cash that didn’t justify their scale or progress. In the previous couple of years, among the momentum buyers haven’t been investing as a lot in India, making a void,” he stated.

“That void has been crammed by affected person capital – sovereign funds had been very quiet in 2020 and 2021; pension funds who had been both quiet and doubtless hadn’t invested a lot in India earlier; and the expansion arms of the personal fairness funds, a lot of which earlier weren’t investing a lot in tech. So these three pockets of capital are mature, long-term and affected person and I anticipate we’ll see extra actions from them going ahead.”

Whereas late stage funding stays tightened significantly, some buyers see brilliant spots in India’s early-stage ecosystem. Peak XV, Lightspeed, Elevation, Accel and Nexus signed over a dozen early-stage offers within the month of January alone, based on an individual acquainted with the matter.

“Whereas many within the ecosystem are busy guessing when winter might be over, we nevertheless imagine there isn’t any time like now to construct (and for us to take a position),” stated Lightspeed associate Rahul Taneja.

The expert expertise and keen capital stay accessible at early phases, he stated. “Founder high quality is a lot better – the parents who’re leaving their jobs really imagine of their concepts, and are prepared to make the leap in what most would name a ‘sluggish yr.’ Entry to top quality expertise is a lot better, and capital allocators have been ready to make bolder bets. Each single day, we get to satisfy distinctive founders on the earliest phases of enterprise creation – and understand how fortunate we’re to be ready to assist India & Southeast Asia’s digital progress.”