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Indian founders expect fundraising environment to be more favorable in 2022: Report

Written by Moulishree Srivastava Published on   3 mins read

The percentage of growth and late-stage companies focusing on profitability rather than growth has come down to 14% in 2022 from almost 35% in 2021.

After a record venture capital inflow of USD 38 billion in the Indian startup ecosystem in 2021, local entrepreneurs believe this year will turn out even better than last year.

About 75% or three out of four founders believe that the fundraising environment will be stronger in 2022, found “India Startup Outlook Report 2022” by venture debt firm InnoVen Capital. The report is based on a survey of 100 startup founders across stages and sectors, including fintech, SaaS, D2C, logistics, education, and B2B, among others.

The report noted that 92% of founders who tried to raise capital in 2021 had a favorable fundraising experience, up from 69% in 2020. Moreover, a lot of startups landed bigger-than-usual checks at high valuations.

“2021 will be remembered as the year when the Indian venture ecosystem hit an inflection point. After navigating through COVID-19 disruptions in 2020, most startups were able to drive growth and enjoy tailwinds,” said Ashish Sharma, managing partner at InnoVen Capital. “A record USD 38 billion of capital was raised, exceeding the cumulative (funding in the) prior three years.”

With the VC money sloshing the local startup community—owing to the high liquidity in the market and all-time high investor sentiment due to rapid mass digitization—more and more founders have been focusing on aggressively scaling their businesses.

Unsurprisingly, the report found that 83% of founders are more focused on growth than profitability this year, compared to 77% in 2021. Edtech, logistics, healthtech have the highest bias for growth, while agritech and D2C brands have a more balanced approach between growth and profitability, the report added.

The percentage of growth and late-stage companies that are looking at profitability rather than growth has come down to 14% in 2022 from almost 35% in 2021. Whereas 20% of early-stage startups are tilting toward profitability rather than growth this year, compared to 14% in 2021.

This is perhaps due to the fact that a lot of growth and late-stage firms have raised big fat checks from global investors at sky-high valuations, and they need to keep up the high-paced growth to justify high valuations.

Notably, 20% of startups surveyed claim to be profitable at the EBITDA (earnings before interest, taxes, depreciation, and amortization) level, while 51% aim to turn EBITDA profitable in the next two years.

According to Sharma, the most promising aspect of 2021 was the fact that startups were able to access public markets and execute successful IPOs. “Zomato and Nykaa led the way and will pave the way for many more IPOs in the future,” he said.

The report found that compared to 47% last year, 71% of founders prefer IPOs as their exit method in 2022, of which 58% of founders are looking to go public in India, while the rest may list overseas. Agritech and logistics startups are the most likely to do an IPO in India over other exit options.

Improving talent management and fundraising are the top two priorities for founders this year. Meanwhile, local founders said hiring good talent is the biggest challenge. 75% of startup entrepreneurs expect higher hiring in 2022 compared to last year, driven by high-growth aspirations and large funding. Startups in sectors like agritech, fintech, healthtech, and D2C are most bullish on hiring.

Furthermore, the percentage of founders with global aspirations has shot up to 61% this year against 49% in 2021. Aside from enterprise SaaS companies, many B2B platforms and edtech startups are eyeing the US, Southeast Asia, and the Middle East for overseas expansion.

Interestingly, quick commerce was the most overhyped sector, as per the founders surveyed, while healthtech emerged as the most underhyped sector.


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