Indian VC Investments Drop 65% YoY In 2023: Report

A new report has revealed a sharp 65 per cent year-over-year (YoY) decline in Corporate Venture Capital (CVC) investments in India during 2023. The nation, which is known for its robust economic growth, witnessed a substantial drop in CVC activity, echoing similar trends in Australia and China, both experiencing declines exceeding 50 per cent.

Despite the overall economic positivity, with sustained GDP growth and record-high stock market indices, the venture capital (VC) landscape in India remained underwhelming in the final quarter of 2023. VC investors displayed a cautious investment approach, taking extended periods to deliberate on potential deals, a departure from the exuberance that characterised the market in recent years, according to the KPMG report.

Within this cautious climate, one of the standout deals from India in the Asia-Pacific region was the late-stage venture capital funding secured by Mumbai-based PharmEasy. The healthcare-focused specialty retail platform successfully raised an impressive USD 420.6 million.

In a statement, Nitish Poddar, Partner and National Leader, Private Equity, KPMG in India said, “Indian economy is quite strong — capital markets at an all-time high, favourable demographics, strong GDP and a stable and active central government. However, the VC investments in the last few quarters have been muted as compared to quarters before."

Source: KPMG Venture Pulse Q4 report"This is not an indication of slow down but the post COVID-19 euphoria dying down where there was excess money supply in the system. With expected easing of interest rates, I am very confident that there will be a strong bounce back in the VC investments in the country,” Poddar added.

Global VC In 2023

Global venture capital (VC) investment saw a decline from USD 531.4 billion involving 51,894 deals in 2022 to USD 344 billion across 37,808 deals in 2023. This decrease unfolded against a backdrop marked by various challenges, including geopolitical tensions, macro-economic uncertainties and other impactful factors. Noteworthy among these challenges were geopolitical conflicts, elevated interest rates, inflation concerns, a subdued exit environment and persistent apprehensions surrounding startup valuations.

The Americas predictably emerged as a dominant force in the VC landscape, contributing to more than half of the total global investment for 2023 at USD 183.6 billion. Asia-Pacific region attracted USD 92.4 billion in VC funding and Europe secured USD 62.3 billion

Q4 2023 And Outlook

The fourth quarter of 2023 was a subdued one for the venture capital (VC) market, which saw a decline in global investment to USD 74.9 billion across 7,572 deals. These figures represent the lowest levels recorded since Q2 2019 and Q3 2016, respectively, highlighting the challenging landscape during this quarter. Despite the overall market softness, investment in Artificial Intelligence (AI) experienced a surge in Q4 2023, noted the report.

Within the United States, the AI sector attracted significant attention, securing six out of the ten largest VC deals of the Q4. This shows the continued momentum and attractiveness of AI-focused companies to investors even in a challenging market environment.

Looking ahead to the first quarter of 2024, the report mentioned that a subdued start is anticipated for the global VC market. The cautious outlook was attributed to factors such as persistently high interest rates, ongoing global conflicts and limited indications that the Initial Public Offering (IPO) market will fully reopen in the first half of the year. Consequently, global VC investment is expected to remain restrained during Q1 2024.

“AI will likely remain one of the most attractive areas of VC investment well into the year, while M&A activity could see some pick-up as opportunistic buyers look for bargains.” – KPMG Venture Pulse Q4 report