The domestic startup ecosystem is expected to rebound with fresh approaches in key sectors like content, media, fintech, and marketplaces. The venture capital ecosystem saw important developments in India and globally in 2024. Three major events need to be highlighted.
First, the COVID-related investment boom that started in 2021 and peaked in 2022 saw venture markets freezing in late 2022/2023. As this period of stasis ends in 2024, interest rates begin to decline, and elections in India and the US conclude, marking a new period of organic growth in venture investments. Second, the Indian IPO market remained strong throughout 2024, resulting in abundant domestic capital.
Companies like Zomato hit new heights, boosting confidence in the profitability of Indian consumer companies. The IPO pipeline remains robust, with both large and small companies participating, though most individual investors from 2021 have stayed away. Third, following the initial excitement around ChatGPT, the real, albeit less glamorous, work of solving problems with AI has begun.
Enterprises are increasingly adopting AI solutions, and startups are innovating full-stack business models, setting the stage for momentum over the next few years. Looking ahead in 2025, the tech job market remains challenging due to productivity gains. This climate is driving more talented individuals toward entrepreneurship, improving the quality of startup founders.
Seed investors can expect a steady influx of strong teams. Venture investment is expected to pick up organically across all stages—Seed, Series A, B, and C. Global funds that have been absent are likely to return.
The price correction for companies valued during 2021/2022 is 60-70% complete and should be fully resolved by mid-2025, ending investor woes from that period. IPOs are expected to drive further consolidation in India, as public listings enable acquisitions across sectors. Listed companies have started acquiring smaller firms, enhancing the liquidity market for domestic companies.
AI’s impact will become increasingly visible, leading to significant momentum over the next few years. This will initially disrupt the most obvious industries and gradually expand to others.
Startups set for strong 2025 rebound
Domestic companies have been slower to adopt new technologies, potentially making them less competitive compared to global tech-first players. Globally, funding for non-AI software startups is expected to become nearly impossible. Companies yet to pivot to AI solutions should do so immediately.
The year 2025 is set to witness a robust capital environment, improved quality of entrepreneurs, and an AI-driven market driving new efficiencies. This should create fertile ground for new investment opportunities across various sectors, including content, media, fintech, and marketplaces. Within the consumer business sector, new funds are targeting ventures that benefit from increased discretionary spending as India’s economy rapidly expands.
According to Accel partner Barath Shankar Subramanian, “The best time to build in India is now. The next decade is going to open up massive opportunities for founders starting out now, thinking about bold new ideas. In India as a $8 trillion economy potentially over the next decade, venture capital-backed companies will have a larger share of this public market cap.”
Among consumption themes, aspirational brands hold significant promise, particularly in light of India’s predominantly young demographic and their consumption-driven behavior.
This trend presents substantial opportunities to leverage discretionary spending patterns. “For instance, Uppercase serves as an illustration of new consumer brands specifically targeting the Gen Z demographic. This generation actively seeks to distance themselves from the 1990s brands associated with their parents and grandparents.
They demand quicker design iterations, enhanced accessibility, and a predominantly digital-first experience for both product visualization and purchasing,” Subramanian added. Tech startups are gearing up for a hot streak of initial public offerings (IPOs) in the coming year, signaling robust activity on the financial markets. Pre-IPO funding rounds and secondary transactions are expected to remain crucial avenues for liquidity, supporting startups as they prepare for their stock market debuts and attract fresh capital.
Industry executives suggest smaller IPOs will gain prominence, providing diversified opportunities for new investors. The past year saw total funding in the sector grow marginally to just under $11 billion, compared to $9.6 billion in the previous year. The anticipation around tech startup IPOs is driven by the increasing maturity of these companies and the ongoing interest from both retail and institutional investors.
These emerging companies are leveraging innovative technologies and business models, positioning themselves as attractive investment opportunities. As the market prepares for this wave of IPOs, stakeholders are keenly watching how these tech startups perform on the public stage. Their success could set a positive tone for the broader market and inspire confidence among future investors and entrepreneurs pursuing public listings.