VC funding ecosystem in India: How Silicon Valley Bank collapse can pave the way for local players
The venture capital (VC) funding ecosystem in India has seen remarkable growth and evolution over the past decade. India has become a hub for start-ups and emerging new businesses, with a number of VC firms providing funding and support. However, the collapse of Silicon Valley Bank (SVB) has had a significant impact on the Indian VC landscape.
Impact of SVB’s collapse
SVB, which established a presence in India in 2015, was a leading player in the country’s VC ecosystem. Its departure has left many start-ups and venture capital firms without access to the services that SVB provided. This has created a gap in the market and amplified some of the challenges facing the Indian VC ecosystem.
One of the main challenges is a lack of regulatory clarity, which has been a persistent challenge for start-ups and investors operating in India. This refers to the absence of clear guidelines from the government or regulatory bodies on issues related to the ecosystem, including foreign investment, taxation, compliance requirements, data privacy and security. This lack of clarity has led to confusion, delays and uncertainty, impacting investor confidence and the growth of start-ups, particularly in emerging sectors such as cryptocurrency and blockchain. There is a need for greater consistency in the regulatory environment, particularly around issues such as foreign investment and exit options. Start-ups and VC firms need stability and predictability to make long-term investments.
Another challenge is a shortage of experienced fund managers. The number of funds has increased significantly in recent years, but there is a shortage of professionals who can manage them effectively, especially when it comes to early-stage investments where the risks are higher and the need for experienced management is greater.
Limited exit options for investors are also a challenge. While the number of exits has increased in recent years, the process is still slow and difficult, particularly for early-stage investments. This limits the ability of VC firms to generate returns for their investors, which in turn shrinks the volume of capital that can be invested in the ecosystem.
When SVB collapsed, it highlighted all of the above as well as the importance of local players. While foreign investment and expertise are important, local players are better positioned to understand the unique challenges and opportunities of the Indian market. So, SVB’s collapse has created an opportunity for local players to fill the gap and provide services and support that start-ups and VC firms need.
Resilience of India’s VC landscape
In spite of the challenges, the Indian VC ecosystem has shown remarkable resilience. Startups and VC firms have adapted to changing market conditions and there are signs that the ecosystem is continuing to grow and evolve.
One of the ways in which the Indian VC ecosystem is evolving is through the emergence of new funding models. Corporate venture capital (CVC) funds are one example of this. CVC funds are established by corporations to invest in start-ups working on technologies or business models relevant to the corporation’s business. This allows start-ups to access the expertise and resources of the corporation while providing the latter an opportunity to invest in potentially disruptive technologies.
Another way in which the ecosystem is evolving is through the emergence of new funding sources, such as impact investing. The corpus is invested in companies aiming to make a positive social or environmental impact in addition to their financial potential. Impact investing is gaining traction in India and several funds and investors are focused on it.
Initiatives to support the Indian VC ecosystem
The collapse of SVB, then, begs the question what is being done to support Indian start-ups and VC firms. In addition to the funding model trends, there are many initiatives to support the growth and development of the Indian VC ecosystem. One of these is the Start-up India initiative launched by the Indian government in 2016. The initiative is designed to support and promote entrepreneurship and includes a range of programmes.
Another initiative is the India Aspiration Fund, established by the Indian government in 2015, which is designed to provide funding and support to start-ups and emerging businesses. The fund has a corpus of $1.5 billion and has already supported a number of promising start-ups and ventures.
While the collapse of SVB has had a significant impact on the Indian VC market, the ecosystem has shown remarkable resilience and is evolving to meet the changing needs of the Indian start-up community. While there are still challenges to be addressed, the future is promising and there are many reasons for optimism. As the landscape continues to grow and evolve, it will play an increasingly important role in driving innovation and growth in the Indian economy.
Published on https://www.businesstoday.in/opinion/columns/story/vc-funding-ecosystem-in-india-how-silicon-valley-bank-collapse-can-pave-the-way-for-local-players-378166-2023-04-20 at 20 April, 2023
