Investing in promising startups has become increasingly enticing within India’s dynamic ecosystem, boasting over 68,000 tech startups and attracting more than 9,700 investors. The potential for substantial returns has piqued investor interest, evident in Inc42’s survey results. In 2023, 56% of investors witnessed exits from their portfolio startups, with 36% reporting returns ranging from 2X to 5X. Despite a decrease in M&A deals to 123 in 2023 from over 200 in previous years, 55% of surveyed investors anticipate favourable exit opportunities in 2024. Notably, 95% foresee initial public offerings (IPOs) as the preferred exit route, as evidenced by SoftBank’s lucrative exit from PB Fintech.
IPOs: A Dominant Exit Route
With the Indian benchmark indices, Sensex and Nifty50, reaching all-time highs, experts anticipate a surge in IPOs among Indian startups in 2024. Notable IPOs expected this year include Swiggy, Navi Technologies, GoDigit, and PayMate. The momentum towards IPOs signifies a growing trend among Indian companies to leverage public markets for expansion and liquidity.
M&As: Challenges and Opportunities
Despite the optimism surrounding IPOs, the landscape of mergers and acquisitions (M&A) remains nuanced. M&A activity in the Indian startup ecosystem declined significantly in 2023, raising concerns about its trajectory in 2024. The challenging funding environment of the previous year might prolong the slowdown in M&A deals. However, potential interest rate cuts by major central banks, including the US Federal Reserve, could stimulate M&A activity towards the end of 2024 and into 2025.
Sector-Specific Trends in M&A
Bhaskar Majumdar, managing partner at Unicorn India Ventures, predicts a consolidation wave in the fintech sector, driven by acquisitions to scale digital-first businesses, particularly by conglomerates like Reliance Group. Similarly, retail tech companies are poised for acquisitions as agile startups seek to acquire scale by integrating with established players.
D2C Brands and AI Startups: Emerging Targets
Expectations are high for increased M&A activity among direct-to-consumer (D2C) brands in 2024, as many face growth limitations. Additionally, AI and generative AI startups addressing niche challenges are likely acquisition targets for larger companies looking to bolster their AI capabilities. However, certain sectors, such as tech, may experience a slowdown in M&A compared to previous years.
Impact on Startup Growth Phases
Sukhmani Bedi, a partner at Orios Venture Partners, suggests that startups in the Series B and Series C stages may witness heightened M&A activity, potentially due to challenges in raising follow-on capital or achieving sustainable growth. This trend underscores the strategic importance of M&A as a pathway to further growth or exit for startups at various stages of development.