India overtakes China in late-stage funding; closing in on early, growth stages: Elevation Capital

India is emerging as a primary beneficiary of China’s crackdown on new-age tech with the value of the venture capital investments in the country surpassing or nearly matching its neighbor across stages. In terms of absolute funding, India overtook China in late-stage funding in 2021 and is beginning to surpass China in the early and growth stages, as per a report by venture capital firm Elevation Capital.

“India is leveraging an interesting dichotomy playing out between the US and China. In the first half of the decade, China took market share from the US, and India remained constant. In the second half of the decade, with China’s percentage of global funding dropping, the US took back the market share and the market share for India increased as well,” the report said.

With ample global liquidity and a riskier outlook on China, India is becoming a lucrative investment for global venture capitalists. In the last four quarters (Q4’21 to Q3’22), venture capital investors infused a total of $32 billion across stages into Indian start-ups in comparison to $31 billion in China. The decline (in China) was primarily driven by late-stage funding drying up in the country, which dropped as much as 82 per cent in the first two quarters of 2022 as against 50 per cent in India. As per the report, companies such as Byte Dance and Shein are trading at significant discounts to their previous valuations while average investment check size has also witnessed a drop across all funding stages.

On a year-on-year basis, India increased its market share from 2016-2021 by more than 2.5x. India’s share of late-stage funding globally has increased to approximately 10.5 per cent in 2022 from 5.7 per cent in 2019.

In early-stage investments, while the US has seen a 44 per cent decline from Q2-21 to Q2-22, India and China have remained relatively stable. General sentiment on India’s early-stage ecosystem continues to remain bullish.

In 2021, for the first time, India outpaced China in new unicorn creation with 47 companies achieving $1 billion valuation or above against 42 unicorns in China. India has seen emergence of 21 new unicorns so far in 2022 while the China number stands at 7. At the current rate, India is on a path to outpace China by 2024/2025 in global unicorn share.

A total of $120 billion was invested in India in the last 10 years, 50 per cent which was just in the last 2.5 years. While the average 2-year funding was in the range of $1.6 billion at the beginning of the decade, it has reached an average of $26 billion in the last 2 years.

The report predicts that India is strongly positioned to navigate this downturn compared to its peers with inflation at a lower rate than many peers in the G-20 (7 per cent in India as compared to 81 per cent in Argentina, 10 per cent in UK and 8.3 per cent in US as of Nov 30, 2022) and with Indian rupee outperformed most peers by high forex reserves.

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