‘More startups will opt for IPOs’

Source: Financial Express, 17 January 2023

The year 2023 is expected to be another formidable year for startups even as both global and domestic VCs sit on large amounts of dry-powder funds amounting to billions of dollars. Though late-stage dealmaking is expected to take a huge hit this year, fund managers and partners at domestic VC firms expect 2023 to be a reasonable year for early-stage startups. In an interview with Salman SH, Prime Ventures’ managing partner Sanjay Swamy shares his expectations for 2023. Edited excerpts:

Was 2022 a year of funding slowdown or a correction?

If you filter out the funding volumes from 2021, which was an aberration, and compare that with the 2022 and 2019 volumes, the figure looks almost similar. However, there’s no question that we moved into an era of a substantial slowdown. But this slowdown wasn’t an unexpected one, because broadly these bull run cycles don’t go on forever. We should expect 2023 to be a flat year in terms of funding volume growth. Growth-stage capital will still be very scarce and only exceptionally good companies will continue to attract capital. As a founder, if you’re lucky to have raised a large late-stage round in 2022, you should be utilising that capital ideally to break even rather than expecting to do another large raise this year.

Do you expect deals to be more selective in 2023? Would quarterly funding drop below the usual average of $3.5-4 billion?

Stage-wise, I expect seed rounds to have more activity this year in comparison to late-stage deals because this is the best time to start companies. The cost of funding new firms just became much lower for VCs as well, with founders willing to accept lower valuation multiples. But at the moment, deals above Series B stages will become much more selective because of the bar (funding criteria).

Historical data indicates that global VC funds have begun to slow down investments in India. Is this situation an advantage for domestic VCs in India?

Do you expect deals to be more selective in 2023? Would quarterly funding drop below the usual average of $3.5-4 billion?

Stage-wise, I expect seed rounds to have more activity this year in comparison to late-stage deals because this is the best time to start companies. The cost of funding new firms just became much lower for VCs as well, with founders willing to accept lower valuation multiples. But at the moment, deals above Series B stages will become much more selective because of the bar (funding criteria).

Historical data indicates that global VC funds have begun to slow down investments in India. Is this situation an advantage for domestic VCs in India?

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