‘Funding winter will get worse before it gets better,’ says Bain Capital’s Amit Chandra

India, like other start-up economies globally, is in the middle of the prolonged funding winter that has led to a sharp decline in venture capital investments over the last 12 to 15 months. So much so that the country has not added a single unicorn in the last 7 months (over two quarters), which is one of the longest lean periods India’s start-up ecosystem has witnessed since 2016.

The question on everyone’s mind is: When will things look up? 

Amit Chandra, Partner and Chairman of Bain Capital India, told Business Today on the sidelines of an event, “It will get worse before it gets better. It’s unfortunate.”

The veteran investor further shared, “Today, the innovation ecosystem in India faces the same problem our capital markets faced in the 90s. FIIs used to sneeze, and we used to catch a cold. But in the last two years, the Indian markets have held up incredibly well even when FIIs have sold. The difference now is the emergence of the domestic institutional investor. The rupee capital provides great comfort, and it creates a great funding base for the mid-to-large cap company to grow.”

So, it is imperative for India to “diversify the funding base and build a lot more local funding for [startups and] innovation in the country,” according to Chandra. “Almost 90 per cent of the startup funding comes from overseas venture capital. This is completely unsustainable,” he said. 

Chandra is an active angel investor himself, and has backed several homegrown startups over the years. “The other question you have to ask is,” he says, “If it is indeed so profitable to invest in startups, why should only foreigners make money from them? Indian investors should also participate in the value creation. That’s something we got to correct.”

Interestingly, not just Chandra, but several Indian debt funds are now looking to deploy rupee capital in early-stage and growth-stage companies. 

At a recent industry event, Rahul Khanna, Co-founder & Managing Partner of Trifecta Capital (a leading homegrown debt fund), said: “The Sequoia of India is Sequoia. The Accel of India is Accel. The Lightspeed of India is Lightspeed. But there are no global venture debt brands in India. This is a totally homegrown asset class. It’s largely been built with rupee capital.”

A recent joint report by Trifecta Capital and BCG found that venture debt investments in India have grown 22 per cent since 2019, and are currently nearing $1 billion in annual deployment. In 2022, over 100 venture debt deals were closed, with an average ticket size of over $7 million. “The equity slowdown from Q2 of CY22 onwards led to higher adoption of alternative financing options,” it stated. 

Registering his support for the venture debt ecosystem, Chandra told BT, “Venture debt is important. I am an investor in 14-15 venture debt funds. I felt it was both an opportunity and a responsibility to promote Indian funds. But it is also important for us to create a vibrant venture equity asset class in the country. Because what you can achieve with equity, you can’t achieve with debt.”