VC-backed firms in India shift focus to cash preservation

NEW DELHI: VC-backed companies in India shifted their focus to cash preservation in anticipation of funding becoming less easy to obtain over the next few quarters and VC investors requiring companies to strengthen their paths to profitability and lower their cash burn.

As per a report by KPMG, VC investment in India dipped in Q2’22, driven in part by global geopolitical uncertainties and rising inflation.

While VC investment in India may be muted over the next quarter or two due to the global reduction in money supply and other factors, the country is expected to remain quite attractive to VC investors over the medium to longer term due to its relatively positive macroeconomic environment and market demographics.

On the India findings, Nitish Poddar, Partner and National Leader, Private Equity, KPMG in India said: “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 federal interest rates, the geo-political 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.” As per the report, venture financing in India surpasses $6.5 billion for the 4th consecutive quarter. Fintech remained the hottest area of investment in India during the quarter, in addition to e-commerce, social commerce, and gaming.

Agritech also attracted a growing number of deals in Q2’22; while the majority of these deals occurred at very early deal stages, the space is expected to see deal sizes grow as the sector evolves.