Global VCs are trying to keep startups warm during India’s funding winter

Marquee investors are trying to revive India’s startup scene. Matrix Partners India, which backs unicorns like Ola and Razorpay, is setting up $450 million (Rs3,522 crore) for its fourth and largest India fund yet. The move comes a week after Sequoia Capital said it was raising a $2.85 billion corpus for southeast Asia, of which $2 billion would go to Indian startups.

Earlier this year, other US-based firms like Accel (backer of Flipkart and Swiggy) and Elevation Capital (Paytm and Unacademy), too, set up their largest-ever India funds and raised over half-a-billion dollars each. Lightspeed Venture Partners, which closed a $275 million fund in 2020, is looking to nearly double its new India fund.

This “fundraising supercycle,” which a January report in CapTable had predicted, comes amid a funding winter that left the valuations of India’s budding companies battered. Most firms that went public over the past year, barring beauty e-tailer Nykaa, are trading below listing prices.

The roadblocks for VCs investing in Indian startups

One key aspect still eludes India’s startup ecosystem: frequent, lucrative exits. Of the more than 200 investments it has made, Matrix Partners India has clocked only 14 exits — a couple of them at huge losses.

Besides, investors face corporate governance issues in India’s arduous regulatory environment. For instance, Sequoia’s latest fund was delayed after its portfolio companies were caught in controversies. These include the one involving finech firm BharatPe’s founder Ashneer Grover and the financial irregularities at social commerce company Trell.

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