THE DRYING TAP

STUNG BY LOSSES AND FACING OTHER CHALLENGES IN ADVANCED MARKETS, VENTURE CAPITALISTS TIGHTEN FUND FLOWS INTO INDIA AND EASE THE PACE OF INVESTING WHILE INCREASING DUE DILIGENCE

- BINU PAUL

EVERY DOCUMENT IS the outcome of a negotiation. In the world of venture capital (VC) funding, the character of this negotiation changes with cycles. After a year of the breakneck pace of investing, which saw a record $35 billion of investor money flowing into Indian companies, the start-up ecosystem is staring at a dry spell. From what has been a founder’s market, the slowdown has caused a paradigm shift where the investors are deciding deal terms.

What has led to this shift? For that, a bit of history first. What we saw in the 24 months leading up to 2022 was a massive influx of capital into India due to excessive money in the global markets. Some of that capital ended up with large investment funds and big capital allocators globally, who have a share earmarked for alternative assets and emerging markets. Besides, during the phase of high liquidity, every investor wanted to diversify its capital pool, resulting in capital being exported to all countries. Consequently, a percentage of it came to India, the third largest start-up ecosystem in the world. For this emerging market, that number was significant.