Last fiscal, investors wrote a check daily for at least three startups

Nearly three Indian startups, on average, received a check every day of the past fiscal year from an angel investor or a venture capital fund, a report by an asset management firm said.

The funds infusion came amid an ongoing funding winter as the year saw a 17% decline in the number of startups raising capital, according to the ‘India Invests’ report by 360 ONE Wealth (formerly IIFL Wealth Management).

Domestic startups raised nearly $7.56 billion in the past fiscal, down 50% from the previous year, with fund-raising in the crisis-riven edtech sector seeing a steep 86% decline to about $128 million.

The value of private equity (PE) deals totaled $23.88 billion, down 28% from the previous year, the report noted, while that of tech deals was down by half from the previous year to $5.3 billion.

Mergers and acquisitions (M&As) declined by 10% in volume terms, and by 69% in value terms from the previous year. Domestic transactions made up close to seven-tenths of the total volume, while consumer discretionary deals saw a 91% surge in value.

In what could possibly be an indicator of a shift in the deals landscape, there was a 55% decline in the volume of investor exits via M&As despite a 41% surge in overall exits.

The scale of investor exits in the past fiscal points to an increase in liquidity, providing investors with ample gunpowder to deploy in new ventures.

“While it is true that across PE, startups, and M&As, there has been a visible drop in the value and number of deals, the 41% increase in total exit value highlights the liquidity at hand and the potential for accelerated growth in FY25,” 360 One Wealth co-founders Yatin Shah and Anirudha Taparia said in a note.

Deals worth up to $5 million accounted for 46% of startup volumes, signaling investor pullback from medium- and large-sized transactions. 

However, despite the slowdown in deal activity, the median value of transactions improved, surpassing the previous peak recorded during the investment rush of FY22, indicating that companies continued to attract substantial investments from private investors, the report said.

The report was, however, optimistic of a turnaround in deal activity.

“Even as private investment experienced a correction in the most recent quarter, bankers are optimistic that the slowdown should soon stabilize, indicating the potential for a strong trajectory in the new fiscal,” Shah and Taparia said in the note.

Angel investors, meanwhile, allocated more funds in FY24 when compared with the pre-pandemic period, the report said, adding that despite backing fewer startups, the investors “indicated a willingness to invest larger sums in this asset class.”