As one of the leading Indian venture capital firms, we would make the following points to global investors looking at India, without getting into party political analysis.

Firstly and fundamentally, India’s economic prospects remain extremely robust. India is on track to become the third largest economy in the world by 2030. It is expected by the IMF to be the fastest growing major economy in the world this year at 6.8 per cent, and to continue at 6.5 per cent in 2025.

This growth is being powered by compelling long-term trends. India’s working age population to population ratio will be the highest of any largest economy by the end of this decade, and consumer spending is set to double in size in the same period.

Even better, India’s growth is digital-led. Between 2018 and 2023 the number of internet users in the country increased from 398 million to 907 million, growing from 29 per cent of the total population to 64 per cent. There are now nearly a billion mobile phone users in India, more than two-thirds of the total population.

Secondly, one of the best ways to access India’s highly attractive growth is via investing in startups.

India now has the third largest startup ecosystem in the world. There was a period of extraordinary growth between 2020 and 2022, when the number of unicorns trebled to over 100 and the number of startups increased by over 50 per cent to 57,000 with a combined valuation of over USD450 billion.

The picture became more complex in 2023 which was a difficult year for a number of reasons including a global economic slowdown and post-Covid market corrections. There was a sharp decline in deal volume and fundraising, which fell 50 per cent overall.

Now, however, there are clear indicators that growth is returning. The number of startups in India rose from 57,000 to 68,000 last year. The number of unicorns has also continued to grow, to 115, with 112 “soonicorns” in the pipeline.

Thirdly, the Indian government has been very supportive of the Indian startup ecosystem and this is very likely to continue.

Previous initiatives include the Fund of Funds for Startups (FFS) scheme, the Startup India Seed Fund Scheme (SISFS), and the Credit Guarantee Scheme for Startups (CGSS). These were implemented under the Startup India initiative to provide capital at various stages of a startup’s business cycle. The government also previously announced several new measures including tax concessions for startups and customs duty exemptions for EV-related capital goods and machinery.

Fourthly, there are other strong factors which could drive future growth. Last year, it was reported that Indian investors have lined up about USD20 billion in dry powder–capital waiting to be deployed in startups. India retained its position as the second-largest destination for venture capital and growth funding in the Asia Pacific region.

The exits that VC funds were able to secure in 2023 in India amounted to USD3.46 billion across 79 deals. That number is likely to rise significantly in the years to come as the Indian startup ecosystem resumes its growth trajectory.

Fifthly and finally, this positive outlook is further supported by the growing focus on high-innovation sectors such as BioTech, Speciality Chemicals, HealthTech, and DeepTech. All of this is being driven by venture capital investment and demonstrates the growing maturity and sophistication of the VC industry in India.

The result of these positive tailwinds for the Indian startup ecosystem is that there is likely to be increased international investment deployed into the space via Indian VC funds as global allocators increasingly recognise the highly attractive opportunities available.

These investors will be likely to recognise that they cannot allocate capital without having the right partner on the ground that can guide them through the complexities and nuances of the Indian market. Indian VC funds that can demonstrate both a strong track record and a distinctive investment philosophy and that have sophisticated international quality operational infrastructure will be best-placed to be those partners.

The firm was founded in 2019 by Swiss unicorn GetYourGuide co-founder Pascal Mathis, former Switzerland Lead at Creathor Ventures Alex Stöckl, and EAT.ch co-founder Lukas Weder. 

The firm writes that the team’s driving force has always been helping ambitious Swiss tech startups to become international market leaders. The firm was established with the singular goal of backing local, pre-seed startups in their first financing round with hands-on, founder-focused funding.

Bucking the venture trend of keeping ‘dry powder’ on hand, Founderful has made nearly 50 investments in the last four years, having made eight Swiss investments in 2023. 

From Fund I, Founderful has deployed USD60 million into 40 start-ups. This represents 109 founders who scaled to create 1,093 jobs and went on to raise almost 6x additional funding of over USD350 million in just three years, some of which from international venture firms. Wingtra (survey drones) has scaled to 200 employees and an annual revenue of over USD20 million. DePoly has been recognised globally for its revolutionary plastics recycling technology and raised a USD15 million seed round, while Corintis (sustainable computing)  is collaborating with global big tech and enterprise businesses.

Founderful has started deploying the capital raised in Fund II, backing the founders of Chiral Nano (alternative silicon chips), Nala Earth (ESG reporting), Ascento (security robotics), SAEKI (manufacturing robotics), Anthropos (workplace skills), Isospec Analytics (biomolecular analysis), Eightinks (lithium-ion batteries) and Faive Robotics (humanoid robotics). 

Alex Stöckl, Founding Partner at Founderful, says: “We’re beyond grateful that we get to continue our work with the most ambitious founder teams of this exciting ecosystem. Switzerland is one of the world’s fastest-growing venture capital markets. With the global shift towards more complex technologies solving some of our society’s most pressing challenges, it will become one of the world’s most important tech hubs. With our founder-operator backgrounds and the deeply rooted access we’ve built over the years into the universities and research institutions with our Founderful Campus program, we’ve become the go-to firm for entrepreneurs and investors alike.”

Founderful II is backed by a range of institutions, family offices, and founders who have scaled their start-ups into global unicorns such as Duolingo, Climeworks, GetYourGuide, Delivery Hero, and Scandit. 

Severin Hacker, CTO and co-founder at Duolingo, says: “Building Duolingo, I’ve seen my own fair share of VC firms, and it is rare to collaborate with an investor who is as meticulous and relentless toward creating value to the founders they backed, as the team at Founderful.”

Jonas Theiler, Head of Asset Management at Artemis Group, adds: “We’ve been working with Founderful since day one, and the companies they back have impressive substance and relevance from a technological and business perspective – they are spot-on doubling down on the Swiss venture ecosystem.” 

Founderful writes that it is laser-focused on the Swiss tech market and, with it, concentrated on supporting founders in the B2B software and industrial technology space This includes robotics and industrial automation, artificial intelligence and machine learning, computer vision technologies, and material sciences innovations in cleantech, climate tech, and construction tech. Founderful works quickly and closely with academia and industry to boost the new generation of technology leaders. 

Lukas Weder, Founding Partner at Founderful, says: “Our fresh identity as Founderful reflects our purpose as a venture capital business to have the deepest understanding of founders and give them the highest level of support. We were once founders ourselves and know what it takes to succeed. We are redefining founder-friendliness beyond just the term sheet through sharing advice, granting insights, and investing courageously. We bring lightheartedness and empathy to serious topics and remain calm in the face of adversity. We try to be the honest companion we would have wanted by our side when we built our own companies.” 

Founderful writes that its thesis on investing in Swiss-based startups has been proven by three megatrends: 

For the 13th consecutive year, Switzerland has ranked first in the Global Innovation Index – topping the lists for technology, knowledge, and creative output. It also has the world’s highest patent per capita ratio, and ETH Zurich produces more university spin-outs than any other university worldwide.

Big tech is fascinated by Switzerland, which is why Google has 5,000 developers there (its largest tech office outside the US). Disney, Nvidia, Meta, Huawei, and Intel have consistently grown their local R&D teams over the past years.

Switzerland is a Unicorn state – there are more billion-dollar tech startups per capita in Switzerland than anywhere else in Europe. Recent unicorn graduates like Scandit (logistics software), Climeworks (carbon capturing), and SonarSource (code security), and bootstrapped under-the-radar success stories like Proton (internet privacy) underline Switzerland’s rising global relevance for B2B technologies. 

Yoram Wijngaarde, CEO and founder of Dealroom, says: “When looking at our data, Switzerland has been on the rise as one of Europe’s fastest growing VC ecosystems over the past five years, and in 2023 becoming the fifth largest venture market on the continent only behind powerhouses UK, Germany, France and Sweden. When you look at nine tech unicorns on 9 million inhabitants, it becomes apparent that this is a market you cannot miss in your coverage as a European fund or limited partner.”  

Late-stage venture capital drags down fundraising

Venture capital has had a turbulent 2023, as highlighted by the results of the latest Preqin investor and fund manager surveys cited in the report. Of the 395 surveyed investors, the exit environment (75 per cent), asset valuations (55 per cent), and interest rates (45 per cent) were considered to be the main challenges that lie ahead. Raising capital has always been difficult for managers, and the recent investor caution is making it a particularly challenging time for fundraising teams, the firm says.

When compared to data for 2022 up to Q3, Preqin data shows venture capital fundraising slowed further in 2023. By the end of Q3 2023, there were 783 funds closed, raising USD85.7 billion in aggregate, representing drops of 9.0 per cent and 47.2 per cent, respectively. While the latest data available is from Q3, it looks like fundraising in 2023 will be at its lowest since 2015 according to Preqin analysts. Strategy-wise, expansion/late-stage funds declined the most, and all regions suffered a decline in fundraising, with North America seeing the biggest impact, both in terms of real value and percentage.  

Looking at investor sentiment, in November 2022, 12 per cent of surveyed investors expected the asset class to perform better in the coming 12 months than in the past 12 months, compared with 38 per cent as of November 2023, over a three-fold increase. The main reasons for investing in the asset class remain and pricing is now more reasonable than in the past few years.

Decline in the number of exits recorded, but healthcare trade sales shine

Venture capital exits recorded for the first three quarters of 2023 reached 1,328, with an aggregate exit value of USD162.2 billion. This number represents a considerable drop from the 1,647 exits recorded in the first three quarters of 2022, a 19.4 per cent decrease from the previous year. Digging deeper, North America remains the dominant region, accounting for 68 per cent of aggregate exit value. What is more, trade sales in healthcare have been a major driver in venture capital exits this year, accounting for 48 per cent of aggregate exit value.

Cameron Joyce, SVP, Head of Private Equity, Research Insights, at Preqin says, “With venture capital fundraising having been weak throughout 2023, we expect managers to remain discerning with their deployments. The pessimistic outlook for future fundraising means that there will be limited capital available to start-up founders, which may drive higher levels of insolvency. That said, some managers will see better entry levels on valuations, which have decreased over the past two years. This will provide a positive tailwind for 2023 and 2024 vintages as they mature.”

Additional key findings from the Preqin Global Report 2024: Venture Capital include:  

Deals: Venture capital deals have been impacted by lower fundraising levels in 2023, and the tougher fundraising environment has meant managers have been deploying less capital. There have been 14,363 deals so far in 2023, and aggregate deal value totalled USD220.7 billion. Compared to the year to Q3 2022, this represents a decrease of 19.3 per cent and 36.3 per cent, respectively. Early-stage deals fared better than late-stage deals, both in number of deals and in aggregate deal value.

Performance: Venture capital performance has taken a hit in 2023, with performance reaching -13 per cent for one-year horizon internal rate of returns (IRRs) to March 2023. No strategy was immune to the impact of valuations and the weaker exit environment. But it is true that near-term performance can be quite different to the overall return for a given vintage, the median net IRR for the 2021 vintage remains low at 6 per cent, but there still remains a long time for this vintage to play out.

Exit value: Trade sales currently, and historically, have accounted for the highest proportion of venture capital aggregate exit value, at 66 per cent. This comes as some recent IPOs, willing to test the exit environment in September 2023, were marked down after listing, which has not given investors and issuers confidence. 

In his Venture Capital Quarterly Update for Q3 2023, Preqin’s Michael Patterson CFA, says higher rates for longer may be a net negative for venture capital (VC). 

“Higher capital costs increase the discount on the expected cash flows of firms and VC is especially susceptible due to its long duration.”

He also questions whether inflation will become more embedded as shifting global supply chains keep inflation above the Federal Reserve’s target rate.

There is already clear evidence that investors are taking what Patterson calls “smaller bites” of the VC pie, reducing the size of planned commitments to VC funds over the next 12 months.

The Preqin research shows that 75 per cent of investors are committing less than USD50 million in the third quarter of 2023, up by 13 percentage points from the same quarter last year.

The smaller commitments are reflected in the lowest levels of fundraising since 2025, which Patterson describes as a “sore point”.

“In the third quarter, 178 funds closed raising USD16.5 billion. This marks the sixth consecutive quarter in which aggregate capital raised has fallen.”

Patterson explains that since GPs have not been returning capital in investors in the tougher exit environment. In turn investors have been unable to put money to work through commitments to firms, which creates a vicious fundraising circle.

Where deals are capturing investor attention, Patterson points to artificial intelligence (AI) where aggregate deal value reached USD75.1 billion in Q3 up from USD67.5 billion in Q2.

Patterson says: “Deals are still taking place but there are fewer happening and the average size is bigger. This may be because firms are preferring to reup into existing companies in their portfolio rather than deploying capital into new start-ups.”

AI has also caught GPs’ attention with aggregate AI deal value as a proportion of total aggregate VC deal increasing from 5.9 per cent in the first quarter of 2023 to 10.7 per cent in Q3.

Patterson says: “Investors have limited choices on how to gain exposure to this vertical in public markets which may be a selling point to LPs who are looking to refresh their VC portfolios.”

Despite this less that rosy picture for the VC world, there is demonstrable appetite for these kinds of investment at least among UK local authority pension funds.

At the end of October, Northern Gritstone, the investment business focused on university spinouts and IP-rich businesses in the North of England, announced a final close of GBP312 million, anchored by investments from local authority pension funds.

More than GBP150 million of the funding commitments have been provided by South Yorkshire Pension Fund, West Yorkshire Pension Fund, Greater Manchester Pension Fund, Merseyside Pension Fund and East Riding Pension Fund.

These have been boosted by additional investments from the metro mayors for Greater Manchester, West Yorkshire and South Yorkshire.

Northern Gritstone CEO, Duncan Johnson, says:“Our deals have already generated nearly GBP100 million of investment in the North, providing support to some of the country’s most promising businesses. Our investors’ backing will allow us to explore further opportunities across the wider northern venture ecosystem and stimulate growth and job creation in the region.”

Other findings include:

• Deal activity: By the end of Q2 2023, venture capital deal-making has trended downward for the sixth successive quarter with 4,485 deals completed, while aggregate deal value reached USD63.2 billion. The lower numbers are largely being driven by a sharp decline in consumer discretionary and healthcare deals. In terms of deal value, information technology has dragged down the total deal value.
• Exit trends: The number of exits and aggregate exit value are 30.6 per cent and 33.0 per cent lower than their five-year quarterly average, at 419 and USD52.9 billion, respectively, by Q2 2023. Exit pricing for assets has not been as high as in 2021, but if public markets continue to improve, more exit activity should occur in the second half of the year.
• Fundraising: Fundraising remains tough for fund managers looking to raise capital. The number of funds closing has been on a downward trend over the past six quarters, albeit with a slight uptick in the fourth quarter of 2022. Aggregate capital raised has followed a similar trend, with 219 funds raising USD26.1 billion by the end of Q2 2023. Investors remain pessimistic, but continue to deploy capital, although less than in the recent past.
• Funds in market: The significant overhang of funds in market trying to raise capital is affecting how long funds are spending on the road, with the overall time spent raising capital increasing since 2020. This is especially highlighted by the fact that seven per cent of funds took six months or fewer to close in the first half of 2023. This is in stark contrast with 2020, when 38 per cent of funds closed after a maximum of six months on the road.

Michael Patterson, Senior Associate, Research Insights, at Preqin says: “It has been a challenging time for venture capital firms looking to raise new funds. This trend looks to continue as investors have been more discerning with whom they are allocating capital to. Adding to this, the weak exit environment has dimmed appetite for late-stage strategies.”

“This is an exciting day for TSXV, as we share our commitments and plans to address near-term stakeholder challenges and build Canada’s vibrant and vital public venture market stronger for the future,” says Loui Anastasopoulos, CEO, Toronto Stock Exchange and Global Head, Capital Formation, TMX Group. “Venture Forward is a key component of our ongoing strategy to push the evolution of our unique and powerful capital formation ecosystem, serve the needs of modern stakeholders, and sharpen our competitive edge in an increasingly borderless capital market landscape.”  

Tim Babcock, Vice President and Head of TSX Venture Exchange, says: “I want to thank the hundreds of respondents from across the community for their candid input and invaluable support throughout the Venture Forward consultation process, and for their immense contribution to shaping this report. We are encouraged by the progress we have made to date in some of the key areas of focus and look forward to the collaborative work ahead in pursuit of positive change, and enduring success.” 

The report highlights four key TSXV commitments: 

• Introducing an innovative TSXV Passport Listing Process to significantly accelerate the listing and capital-raising timeline for qualified TSXV new listing applicants, 
• Accelerating the Exchange’s ongoing Digital Transformation by providing issuers with increased access to digital products, services, and resources, 
• Launching TSXV Sandbox, an initiative to encourage innovation and provide support for listing unique businesses or transaction structures, and 
• Evaluating the need and appetite for a New, Highly Differentiated Exchange to complement TSXV, with the goal of providing new categories of early-stage companies, alternative asset classes, and investors with access to public markets. 

The report contains six additional commitments designed, the exchange writes, to enhance TSXV’s position as the global leader in supporting the success of small and medium-size public companies.  

Fineqia will transfer a selection of its investments to a new company called Fineqia Glass Slipper Ventures (FGSV), which will form part of FGSV’s portfolio. In lieu, Fineqia will receive a proportionate equity interest in the Fund.

The firm writes that FGSV will leverage Fineqia’s expertise in digital assets and its focus on investing in early and growth-stage technology companies to identify emerging organisations and protocols across the new digital asset economy. Fineqia has previously invested in digital asset manager Wave Digital Assets LLC, the Wave NFT Fund, blockchain gaming platform company Forte Labs, Inc. and the IDEO CoLab Fund 1 from its balance sheet.

“We have a proven track record of investments that are generating extraordinary returns,” says Fineqia’s CEO Bundeep Singh Rangar. “An investment fund will give us more firepower to invest in the most promising firms among the scores we see monthly and take advantage of entry valuations not frothy as they were 18 months ago. That means the same investment sum can be deployed across more companies.”

The Company intends to set up FSGV as a private closed-end fund in the European Economic Area (EEA), with the aim of generating significant returns by investing in promising firms that hold substantial growth potential. Fineqia has identified segments such as blockchain infrastructure, decentralised finance (DeFi), and metaverse including gaming, media and entertainment, as key investment areas.

It writes that it will also allocate some funds toward opportunistic deals such as distressed companies and to back entrepreneurs tapping into new emerging technology applications within the blockchain industry. It will take a chain-agnostic approach, recognising that the future of blockchain will be multi-chain and borderless, premised on interoperability, seamless customer onboarding and tangible revenue traction.

The firm writes that FSGV will be set up with the appropriate approval of a regulator located within the EEA, which includes the European Union countries as well as Iceland, Liechtenstein, and Norway. The set-up cost of FSGV will be CHF100,000 (C$150,000). The Company anticipates an initial closing, which is the first time that investors commit to making their investment, by Q3 2023.

There were 239 private equity and venture capital-backed M&A deals in the UK in 2022, with a total value of USD28.01 billion compared to 352 transactions aggregating USD72.01 billion in 2021, according to S&P Global Market Intelligence data.

Key Highlights:

Only nine deals in 2022 were valued at more than USD1 billion — the lowest level in five years — and they amounted to nearly three-fourths of the aggregate transaction value.

By comparison, private equity investments in Europe last year were down 24 per cent annually to USD81.68 billion, according to the data. In terms of deals worth USD1 billion or more, Europe had 23, down from 28 in the previous year.

Private equity transactions in the UK are expected to remain slow during the first quarter due in large part to a gap in pricing.

The pricing dislocation between sellers and buyers will impact the number of deals until that gap is bridged. Private equity sponsors will most likely be looking at other ways to bridge the funding gap through higher vendor rollovers, earn-outs and/or more equity funding.

The second quarter is predicted to show an improvement in private equity-backed deals, with the trend pacing up in the last six months of 2023. Deal numbers in the UK will be similar to 2022, but transaction values are likely to trend downward as sellers adjust their price expectations, the firm says.

KKR & Co. Inc.’s pending buyout of power generation company ContourGlobal PLC from Reservoir Capital Group LLC for USD5.79 billion was the UK’s largest private equity or venture capital-backed deal in 2022.

The second-largest was Veritas Capital Fund Management LLC’s acquisition of research and consultancy firm Wood Mackenzie Ltd. from Verisk Analytics Inc. for USD3.30 billion, followed by Clearlake Capital Group LP’s takeover of Chelsea FC Holdings Ltd. for USD3.09 billion.

Theta Blockchain Ventures III is a continuation of Theta’s Fund of Funds programme investing in crypto-native VCs. The firm has deployed over USD500 million to date and has backed many leading companies and protocols from the earliest stages through its wide network of specialised VC firms.

John van Marle of Theta Capital, says: “We believe that blockchain technology has immense value over the long term, and that our diversified approach is particularly well-suited to the current market environment. While there is localised risk within the crypto ecosystem, now is the ideal time to build diversified exposure to this innovative and transformative technology across verticals.”

The investment thesis for Theta Blockchain Ventures is that the digital infrastructure that crypto protocols provide are quickly becoming the financial backbone of an ever more digital world. The technology continued to progress rapidly throughout 2022 and into 2023 and continues to solve its early bottlenecks. It has come to an inflection point where it is now ready to start onboarding hundreds of millions of users. Already, these crypto protocols are supporting trillions of dollars of economic activity.

“There has been a clear decoupling between technological progress and increased adoption on the one hand and investor sentiment on the other. The poor macro backdrop and the actions of several bad actors has contributed to this low in sentiment. For us, it provides an opportunity to further establish our footprint in this industry at a highly opportune time,” says Van Marle.