Also in the letter:
■ Gen Z spurns influencers, embraces peer power for product picks
■ Twitter paywall may hurt revenue and usage: experts
■ How will FY24 pan out for India’s IT industry?
Despite raising new capital, funds keep purse strings tightened
Domestic and global investors, who have raised record funds over the past year, have mostly held on to their unallocated capital in the first six months of 2023, when startups witnessed a substantial drop in funding.
VCs wary: Prominent investors focused on India, which have typically backed portfolios in growth and late-stage rounds, have moved upstream towards funding early stage (including seed to series A) companies amid increasing uncertainties caused by global macroeconomic headwinds. Data shows a dramatic slump in funding even at the early stages.
Additionally, while the sunrise sectors of artificial intelligence (AI), climate-tech, and deeptech look good on paper, VCs have struggled to take a long-term view of these segments, and refrained from doubling down on such bets, especially in India.
Also read | EV, AI, semicon favourites for VCs amid sluggish startup funding
Tempered hopes: With investors going slow on newer bets, at least four venture operators told us that the slowdown has also led to several VCs toning down the expectations of limited partners.
“Deployment cycles are likely to move to three years rather than two. At the growth stages, the funding momentum has worsened because previous valuations were at the top of the market. If these companies go into the market now, they might see a 50%-60% erosion in valuation, leaving no incentive for entrepreneurs to raise funds,” said Arjun Malhotra, general partner of Good Capital, which just launched its $50 million AI fund.
No thaw in funding winter: In the first six months of 2023, Indian investors poured in only $3.85 billion in equity funding across 546 deals, a 79% drop from the $18.4 billion invested in the year-ago period, according to data sourced from research firm Venture Intelligence.
This is lower than the $4.1 billion invested in the first half of 2020, when Covid had gripped economies and funding had plummeted. In the first half of 2023, no new unicorn was born in India, compared to 16 in the same period last year.
Investors wait and watch as zombie crypto market shows signs of life
As the market showed signs of a revival in the first half of 2023, Indian cryptocurrency investors adopted a cautious “wait and watch” stance anticipating a recovery of their pulverised portfolios, which were created during the crypto bull run of 2021.
What’s driving the optimism? This is driven predominantly by a resurgent Bitcoin. Bitcoin has jumped more than 80% in 2023 and the overall crypto market is now touching $1.19 trillion.
Investors await gains: “Most Indian crypto investors bought digital assets when the market was on a tear, and when the market corrected sharply in 2022, their portfolios shrank substantially. Now they are just waiting to recover their initial investments,” Vishal Gupta, a Noida-based crypto investor, told us.
Bitcoin’s rally has buoyed sentiment among investors. “Despite the market’s ongoing challenges, such as the SEC’s crackdown on major exchanges like Coinbase and Binance, Bitcoin has defied expectations. One of the driving forces behind the recent price surge is the news of BlackRock, the world’s largest asset management company, applying to launch a Bitcoin ETF,” Chahal Verma, a Gurgaon-based crypto investor, said.
Another investor, Mumbai-based software engineer Ashwin Nadar, said that the crypto markets have surged and so has the mania, fuelled by Memecoins like Pepe and Ordinals (NFTs on Bitcoin), attracting a new wave of speculators.
Government gives grief: Following a year of rapid growth in 2021, during which a record number of Indians joined the crypto market, 2022 brought significant losses to most investors. The downturn was compounded by the Indian government’s announcement in February 2022 of a 30% tax on all profits made from crypto trading, as well as a 1% levy on every transaction.
Also read | Crypto blues making exchanges look for new revenue streams
The Indian exchanges, which are currently grappling with a staggering decline of over 90% in trading volumes, are urging the government to adopt a more accommodating policy towards cryptocurrencies, aligning with the approach taken by other prominent emerging global centres.
The unbooming of crypto boom: If declining trading volumes (more than 90% last year) because of the tax imposed by the union government was a major indicator of the evaporation of interest, the hardening stance of the banking regulator has chased away demand farther.
By calling out the widespread adoption of private cryptocurrencies as a risk to monetary stability, the RBI has indicated to the market that its stance will only get harder going forward.
Friendfluence wins: Gen Z embraces peer power for product picks
Social media influencers may not be as influential as the friends of Gen Z shoppers, a new report has revealed. Youth media insight and impact company Yuvaa’s report titled ‘Not all Gen Z’, suggests that Gen Z are 50% more likely to buy products based on a friend’s recommendation than that of an influencer or a celebrity.
What’s Gen Z? Gen Z is a term that refers to the generation born between 1997 and 2012.
Gen Z shopping trends: Due to their heightened awareness of and concerns about climate change, a significant 71% of Gen Z shoppers in India showed a preference for environment-friendly brands, the report suggested. Additionally, 63% of them prefer brands that champion social causes. Retail experts observe that while Gen Z expects brands to offer sustainable products, they are reluctant to pay more for them.
A generation of thrifters: The report further highlights that nearly 77% of Gen Z shoppers prioritise affordability when making purchase decisions. This price-conscious buying helps explain their active participation in promoting the thrifting culture, which involves purchasing second-hand goods from specialised shops.
ETS leads funding in study-abroad platform Leverage Edu
Leverage Edu founder and CEO Akshay Chaturvedi
Global education, testing, and assessment organisation Educational Testing Service (ETS) has led a new funding round in the international study-abroad platform Leverage Edu, amid bad news emerging from the edtech sector. The round also saw participation from existing investors.
Deal details: The round is a mix of equity and debt worth $40 million, with the equity portion being roughly around $25-$27 million, sources told ET.
This is likely to value the startup at roughly $150 million post-money, the sources added. This is a 25% bump in valuation from March 2022, when it raised $22 million from a consortium of funds, family offices, and individual angels.
Tell me more: The funding is strategic as Leverage Edu looks to ramp up its focus on the US higher education market, diversifying from its mainstay, the UK. The company also helps students with admissions to colleges across Australia and Canada.
“It seems to be a part of a larger strategy to de-risk itself from being overly dependent on one particular geography for business,” said one of the sources, requesting anonymity.
Who is ETS? ETS develops standardised tests primarily in the US, and also administers international tests, including the Test of English as a Foreign Language (TOEFL), and the Graduate Record Examination (GRE). It has previously invested in edtech unicorn upGrad.
Twitter paywall may hurt revenue and usage: experts
Experts believe that Elon Musk-owned Twitter’s decision to limit the number of tweets paying and non-paying users can read will impact the microblogging site’s revenues.
Paywall may hurt revenue: Mishi Choudhary, a tech lawyer, said that Twitter, with all its experimentation, is fast losing its utility, and that Musk needs to come up with a more thought-through strategy rather than confusing the users.
Kasim Rizvi, director of the think tank The Dialogue, said that restricting the number of posts also paves the way for filter bubbles, causing echo chambers and passive censorship.
Catch up quick: Musk on Saturday announced that the company has decided to set ‘temporary limits’ on the number of tweets a user can see. This came as users across the globe complained of an ‘outage’, as they saw ‘cannot retrieve tweets’ and ‘rate limit exceeded’ error messages on their timelines.
New limits: According to Musk, verified accounts will be able to access 6,000 posts per day, while unverified accounts can see only 600 posts. New accounts have been restricted to 300 posts a day.
Musk, in a second tweet, added that the limit will soon be increased to 8,000 for verified users, 800 for unverified, and 400 for new accounts. In a third tweet, he said, the reading limit will be 10,000 tweets per day for verified users, 1,000 for unverified users, and 500 for new unverified users.
The rationale: Musk’s rationale behind setting the new limit was to ‘address extreme levels of data scraping and system manipulation’.
No account, no tweet: Twitter has introduced a new requirement where users must have an active account on the social media platform to view tweets. In a statement on Friday, Musk characterised this change as a `temporary emergency measure’.
Other Top Stories By Our Reporters
Future imperfect: How will the year pan out for Indian IT? Extended deal closure periods, insourcing, large contract cancellations, vendor consolidation, and project ramp-downs are now co-existing with large deal announcements and elevated outsourcing demands. So what does the rest of the year look like?
Techies in non-tech firms: A rapidly increasing number of non-tech businesses have begun their digital transformation journey, which has led the non-tech sector in India to employ more than 7,65,000 tech professionals.
ServiceNow CTO Pat Casey
India teams conceptualised generative AI solution: ServiceNow CTO | Enterprise cloud computing company Servicenow’s India team accounts for almost 15% of its global workforce and has been pivotal in building its new offerings across generative artificial intelligence solutions, its chief technology officer told ET.
Global Picks We Are Reading
■ How actors are losing their voices to AI (Financial Times)
■ The new kids on China’s AI block (Rest of World)
■ A crypto micronation’s future hangs on a border dispute (Wired)
For all the latest Technology News Click Here
