VC funding in India to remain muted over coming quarters: KPMG

Venture capital (VC) funding in India may remain muted over the next quarter or two due to the global reduction in capital supply and other factors. However, the country is expected to remain attractive for VC investors over the medium to longer term because of its relatively positive macroeconomic and market conditions, a report by KPMG said on Monday.

VC funding in India has already declined for the third consecutive quarter in the April-June period, falling to $6.5 billion from $9.3 billion in the January-March period, driven in part by global geopolitical uncertainties and rising inflation, KPMG’s venture pulse report showed.

The country still surpassed $6.5 billion in funding for the fourth consecutive quarter.

Indian companies have shifted their focus to increase runways as they anticipate capital will become less easy to get over the next few quarters. VC investors now require companies to strengthen their paths to profitability and lower their cash burn.

“In India, the funding hasn’t dried up yet, but many startups are taking proactive steps to reduce their cash burn, given the increase in (US) federal interest rates, the geopolitical crisis and other evolving issues. Because they anticipate challenges raising funding and expect investors will increasingly ask for paths to profitability and better cash conservation, they’re doing what they can to improve their operating position now so they can potentially avoid drastic changes later,” Nitish Poddar, partner and national leader, private equity, KPMG in India, said.

In the quarter gone by, fintech remained the hottest investment area, as also highlighted in several other reports recently. E-commerce, social commerce and gaming followed, while agri tech was highlighted as a budding sector. While the quarter saw very early deal stages, the space is expected to see deal sizes grow as the area evolves, the report concluded.