Amitabh Kant Advises Indian Startups To Start Attracting Indian Money

With the decrease in global funds flowing into startup community, Amitabh Kant, India’s G20 Sherpa has asked the Indian startups to start tapping Indian money. His suggestion comes at a time when the global startup community is facing the funding winters. 

Indian insurance cos and pension funds still not investing in startups

Setting a pitch for putting investments from pension funds and insurance firms into Indian startups, Kant says, “The challenge is that Indian insurance companies and pension funds are still not investing in startups. There’s a vast amount of investable sums.  They must be asked to put more and more resources into Indian startups.”

“Pension funds and insurance firms should look at the possibility of setting up a funding corpus like the ‘fund of funds’ to support startups working in new, emerging areas like deep tech,” Kant, the former CEO of NITI Aayog says while addressing a summit in the national capital.

Indian startups must start attracting Indian money

The startup diaspora has faced a heavy dent due to poor investor sentiment in the last one year. There already were multiple reasons for the decrease in funding like the macroeconomic challenges, concerns around startup valuations, lack of companies that can generate significant returns for the investors, recession. Fallout of Silicon Valley Bank has further added to the problem.

The late-stage Indian startups get external funding to support and grow their businesses from foreign investors like Japan’s soft bank, US based Tiger Global.

“Money into startups come from Silicon Valley or many other funds from across the world. Indian startups must start attracting Indian money,” said Kant.

According to a report from Bain and Company, increasing macroeconomic uncertainty and recessionary fears drove caution in investing momentum globally.

Funding momentum in India similarly softened in line with the global slowdown as total deal value saw a compression from USD 38.5 billion to USD 25.7 billion from 2021 to 2022, the report highlights. 

While macroeconomic factors drove the slowdown in funding globally, the report points that India continues to be attractive for investors globally given strong fundamentals. Low leverage, tech adoption, and favourable demographics create a long runway for growth. 

“We see limited impact, especially in early-stage rounds, and continue to invest across sectors,” says the report.

There should not be easy money

“There should not be easy money. Money should get into startups that are well governed, Kant cautions emphasizing that startups with sound business models will face no dearth of investments.

Currently, regulations do not specifically permit insurance companies and pension funds to invest directly in startups. 

The focus will be to go green

However, after certain amendments in 2020-21 insurance companies were permitted to invest in ‘fund of funds’ which could invest in startups, but not directly into startups.

Suggesting that the startups, which are particularly building green initiatives and operating in segments like deep tech, cloud, robotics will gain traction, Kant says, “The focus will be to go green. Valuation and capital will flow into these startups.”

It must be noted that in 2022, India accounted for 5.1% and 6.3% of global VC funding value and volume, respectively.

Nevertheless, investor confidence has suffered in 2023, leading to a decrease in VC funding activity. 

According to Global Data’s Financial Deals Database analysis, in January 2023, India announced 87 VC deals worth USD 696.2 million.

This is a decline of 13.9% in volume and 23.1% in value compared to December 2022, when 101 VC deals worth USD 905 million were announced.