Moneycontrol Pro Panorama | Is the funding winter beginning to thaw?

What started with a disappointing performance and a slowing outlook in the tech sector was precipitated by other factors such as rising interest rates, high cost of funds and several banks.

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One thing that stands out among private equity (PE) investors or venture capitalists is the ‘never say die’ attitude. Notwithstanding mounting losses from its past investments, Japanese tech investor SoftBank is back in the news as it scouts for start-ups to fund.

The Masayoshi Son-led investment platform, according to media reports, is open to funding companies that could turn into unicorns. It is in talks with five Indian start-ups, according to media reports. While the stake per enterprise may be lower than what was seen earlier, it is open to providing exits to cash-strapped entrepreneurs. Note that SoftBank was in the spotlight a few years ago in India, for early and huge investments into hotel aggregator OYO, and e-commerce platform Meesho, among several others.

However, along with the funding winter globally faced by start-ups, that affected money flows into loss-making entities, SoftBank’s investments too have been falling over the past two years globally and in India. What started with a disappointing performance and a slowing outlook in the tech sector was precipitated by other factors such as rising interest rates, high cost of funds and several banks with exposure to start-ups going belly up!

But as the old adage goes, after every winter there is spring. Is the funding winter beginning to thaw? Arun Natarajan, founder of Venture Intelligence, in this article points out that while there is no breakout Indian artificial intelligence (AI) start-up with a mass consumer facing application yet, VCs have been busy backing start-ups that apply AI for specific verticals.

Also, read about Cathie Wood of Ark Innnovation ETF fame, who is set to back “disruptive innovation” such as AI.

Perhaps, PE and VC funds are making a comeback in a new avatar. Media reports suggest that investors are exploring debt-like structured financing that could find use in late-stage financing, perhaps to support worthy tech start-ups.

Indeed, in India as in other parts of the world, the turmoil in the IT, technology and fintech sectors has put entrepreneurs in the dock, with even planned public issues having to be shelved. In India too, crowned unicorns such as MobiKwik, VLCC, Oyo, Mamaearth, Byju's and Swiggy are stranded, at least until investor appetite for start-ups improves and can digest initial years’ losses.

Meanwhile, it is known that the US financial system is not in the pink of health. Issues such as inflation, the banking crisis and the looming debt ceiling that is pending a decision continue to haunt the region. So, it could be a good time for domestic investors to throw their investing net over start-ups that may come at reasonable valuations. That said, data from Venture Intelligence on funding -- negative both for month-on-month and year-on-year growth -- does not warrant a celebration over start-up funding yet.

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Vatsala KamatMoneycontrol Pro