Just returned from my quarterly trip to India. With the recently held elections (and a bit of a surprising result there!), it was interesting to get a pulse of what’s happening on the ground. Here are some key takeaways from my meetings with founders, investors, and operators in the ecosystem:

1/ Real reasons behind BJP’s weakened mandate

While Modi created a massive pre-election narrative of the BJP coming back to power with an even bigger majority than in 2019, it ended up losing ground in the actual results tally.

Honestly, I didn’t see it coming but talking with people on the ground, one of the major reasons behind the weakening of BJP seems to be shrinking employment opportunities, especially for young graduates. While the India macro story stays strong, there are pockets of economic distress in the poor states and amongst the lesser-skilled parts of the population/ those graduating from non-top-tier universities.

It’s clear that while Modi focused a lot on infra buildout over the last 2 terms, one of his core focus areas in the 3rd term needs to be continuous job creation for all sections of society. This might require some bold reforms.

2/ Investors are largely unperturbed by the election results

Given that the BJP-led NDA coalition still has a comfortable majority in the Parliament, and Modi continues to be the PM with a largely unchanged cabinet, Investors are expecting political and economic continuity in this 3rd term of the govt.

So, expect continued momentum on key execution tracks from the last 2 terms, including physical infrastructure buildout, expansion of digital public goods, and focus on technology startups.

3/ General Catalyst acquiring Venture Highway

The news of GC acquiring VH broke out while I was in Bangalore. While it could be a one-off development, it’s still a positive greenshoot that a large Silicon Valley-based, premier capital pool is allocating to the India venture market.

Personally, I also believe it’s a smart move from Hemant Taneja to acquire a high-performing team that is local and has developed on-ground expertise, versus parachuting people in from the Bay Area or doing the fly-in-and-out model.

Not recruiting and empowering a high-quality local leadership team is a classic India entry mistake that both Y Combinator and AngelList did, which is why they have struggled to crack the market.

4/ All VCs talking deeptech now

Similar to the Valley, deeptech has now clearly become the flavor of the season. Even a few years back, major Indian VCs spending time at the IIT incubators or looking at sectors like manufacturing and semiconductors was unheard of. This time, I heard multiple instances of VCs writing large seed checks into deeptech companies.

My only fear is that based on past history, the Indian VC ecosystem tends to behave in steep emotional cycles, flooding hot sectors with capital in tandem like a herd (eCommerce 15 years back, fintech 10 years back, lending and SaaS 5-7 years back), and then abandoning verticals also in tandem like a herd (eg. no one is touching edtech now).

These emotional cycles are incredibly counter-productive for long-term company building, and also tend to be incredibly disturbing, especially for younger, 1st-time founders. As the deeptech wave begins, I hope some lessons are learned and implemented from previous cycles.

5/ Angels suffering from 2021 vintage markdowns and illiquidity

One of my observations on the Indian venture ecosystem has been many new-gen angels tapping out in 2023/24. While some of the marquee spray-and-pray ones, as well as the conventional IAN/Mumbai Angels persona, continue to be active, many high-quality operator angels seem to have bowed out of the game.

On bringing this point up with folks, they confirmed that the portfolios of many new angels who started deploying in 2020 and 2021 are suffering from either major markdowns and writeoffs or prolonged illiquidity of marked-up positions. I would also add layoffs, salary rationalizations, and a lack of broader ESOP liquidity (barring a few cases here and there) to the list of reasons behind many angels bowing out of the game.

6/ Seed capital is plenty but wants more traction. Series As continue to be hard.

Similar to the Bay Area, I heard that while there is plenty of pre-seed/seed capital available in the ecosystem right now, the bar for raising Series A has significantly gone up. As a result, companies are seeing both larger seed rounds as well as extension/ top-up rounds happening as we speak.

Several seed investors shared with me that one of their learnings from doing many idea-stage deals in 2021 is how companies are taking so much longer than they initially estimated to go from zero to even $100k ARR. This is adversely impacting the IRRs of seed portfolios. Also, given valuations have now massively corrected, the next round markup isn’t in line with the time it’s taking to get to early traction.

Given this dynamic, many seed investors are now tracking companies and waiting to see more traction before pulling the trigger on idea-stage companies. Btw, am seeing similar behavior even in the late seed/ pre-Series A/ Series A spectrum too, where VCs are waiting to see a long enough timeline of revenue growth, retention, and other metrics before engaging seriously.

Another related observation – growth capital for tech companies is a major gap in the India venture ecosystem right now. Many strategics and hedge funds that were writing large checks post-pandemic have either completely exited the market (eg. Softbank, Alibaba, and Tencent) or are triaging their current portfolios. Recent cases like Prosus writing off its entire ~$500Mn investment in Byju’s isn’t helping to build confidence either.

7/ Public markets continue to rip, lots of FO appetite for pre-IPO rounds

After a brief blip post-election results, Indian public markets have continued to rip. There is a whole new generation of young Indians who are leveraging new-age brokerage apps like Zerodha and Groww to actively participate in the markets. In fact, recent F&O retail trading numbers suggest that a majority of this activity might in fact, be speculative rather than long-term, fundamental investing.

It is noticeable to see frequent ads on Indian TV channels encouraging everyone to invest in mutual funds. An uncle who recently visited us in SF was bragging over chai about how he “made 55 lakhs in the market already this year”.

During this India trip, I saw my father casually opening and checking his brokerage app dashboard multiple times daily. I also noticed that a majority of YouTube consumption by this age group is financial influencer and stock tips content.

On a similar note, a few institutional investors shared how domestic Family Offices are showing an increased appetite for pre-IPO investments in companies like Lenskart, FirstCry, and Oyo. In fact, with the domestic index doing really well, FOs are more skeptical of taking LP positions in venture funds right now, preferring to either stay liquid in public markets or take relatively de-risked, later-stage positions in pre-IPO private companies.

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