Funding winter may end this year, says India Quotient’s Anand Lunia

Bengaluru: The prolonged funding slump affecting Indian startups is showing signs of abating and could potentially conclude as early as this year, according to Anand Lunia, founding partner of venture capital firm India Quotient. 

Despite the challenges, Lunia sees a silver lining in the funding winter, considering it an opportune time for genuine entrepreneurs to emerge due to the reduced competition and increased investment capacity.

"I am worried the funding winter is getting over…people who start companies in the winter, usually are the real entrepreneurs as they are starting for a real reason. They are not gold diggers, who will opportunistically come and go…that's the reason I love winters," Lunia said.

This comes against the backdrop of a significant reduction in funding for Indian startups in the past two years. Factors like inflated valuations during the pandemic, uncertain global economic conditions, and geopolitical tensions have dampened investor enthusiasm. According to the India Tech Unicorn & Exits Report 2023, Indian startups collectively raised $8.2 billion last year, a steep decline from the $25.9 billion garnered in 2022.

Looking ahead, Lunia is optimistic about the current year, anticipating improvements in the global macroeconomic climate and geopolitical stability. "I think this year will be even more optimistic... There's a lot of (positive) politics building up," he said.

India Quotient, co-founded by Lunia and Madhukar Sinha in 2012, is a leading early-stage investor in the country. It has supported over 80 startups across various sectors like fintech, edtech, healthtech, SaaS, social networks, agri-tech, and consumer tech, including notable names like Sharechat, Sugar, and Lendingkart.

Lunia highlighted the need for venture capitalists (VCs) to refocus on consumer investments, which have been sparse in the last two years. He anticipates a rise in AI-driven sectors and a resurgence of B2C and software investments in India.

The firm, which launched its fourth fund in 2021 currently valued at $109 million, plans to introduce its fifth fund this year, aiming for a diverse sector investment. The company, however, did not disclose the size of the fund.

Lunia also pointed out a missed opportunity in hardware investment by VCs. He predicts significant developments in this area, especially where hardware intersects with artificial intelligence (AI), citing drones and satellites as examples.

While India is making rapid strides in local manufacturing, Lunia underscored the potential of India's internet economy to achieve true independence by developing software products that reduce reliance on firms like Google and Microsoft.

Emphasizing India's growing digital landscape and burgeoning youth population, Lunia sees immense potential for Indian founders to create ground-breaking platforms that could rival giants like Facebook and Instagram. “Indian founders are better placed to build the next big platform."