Indian e-marketplaces are going to see funding shortages in the near term, according to reports
- ByStartupStory | December 2, 2022
The venture funding environment of India is heading towards a slowdown in the near term for all major marketplaces across categories including e-commerce, fintech, ride-hailing, and food delivery. According to a report on Indian marketplaces by research firm Bain & Company in partnership with venture capital firm Accel, “Going forward, investors are likely to focus more on proven models and experienced founders, potentially entering into more late-stage deals with higher round sizes.”
As macroeconomic conditions continue to worsen, dealmaking is likely to be more measured, and valuation multiples will see some degree of reduction, which is similar to what is happening throughout the startup ecosystem in both India and abroad. In the first 10 months of 2022, marketplaces combined raised about $4.5 billion, just one-third of $14 billion the industry raised from January-October 2021. “Funds in India are anticipating corrections from last year’s high valuations; valuation multiple compressions in the US markets expected to trickle into some sectors,” the report said.
Anand Daniel, Partner, Accel, said that amid a tough funding environment, investors are likely to only fund marketplace startups helmed by founders who already have the experience of running a marketplace. He further added, “If someone is starting a new marketplace, if they have learned from working at an existing marketplace, it gives an edge, especially when markets are slower. Someone coming out of Swiggy says I have built a unit here or scaled there, that always helps because they know what they are talking about, they are not going to make the known mistakes. But, having said that, there is no stereotype to founders, so the next great founder could be coming from anywhere.”
The already existing marketplace-based tech companies and newer ones will primarily see growth by expanding into newer territories. This expansion will go beyond Tier III cities and will go to international markets. Daniel, however, cautioned that companies cannot burn money while expanding, he said, “For companies that have found a product-market fit for a particular area and can make it work on a unit level economics in India, and if they take the same model globally, the average order value will go up, but they will have to be mature and thoughtful in that expansion.”
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