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

India is emerging as a major beneficiary of China’s new-age tech crackdown, as the value of venture capital investments in the country outpace or nearly match its neighbor across the board. According to venture capital firm Elevation Capital, in 2021 India overtook China in terms of absolute funding in final funding and surpassed China in early stage and growth.

India is taking advantage of an interesting dichotomy between the US and China. In the first half of the decade, China took market share from the United States and India held steady. In the second half of the decade, as China’s share of the global budget declined, the United States regained market share and India’s market share increased.

With abundant global liquidity and a risky outlook for China, India is becoming a lucrative investment for global venture capitalists. In the last four quarters (Q4 to Q3, 22), venture capital investors have pumped a total of $32 billion into Indian startups at various stages, compared to $31 billion in China. The decline (in China) was mainly driven by late-stage funding in the country, which fell by 82% in the first two quarters of 2022, compared to 50% in India. According to the report, companies like Byte Dance and Shein are trading at significant discounts to their previous valuations, while the average investment check size has also seen a decline across all funding stages.

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On a year-over-year basis, India increased its market share by more than 2.5 times from 2016 to 2021. India’s share of global end-stage financing has increased from 5.7 percent in 2019 to 10.5 percent in 2022.

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In early-stage investments, while the US saw a 44% drop from 2Q11 to 2Q12, India and China remained relatively flat. Public sentiment on India’s early-stage ecosystem remains bullish.

In 2021, for the first time, India surpassed China in creating new unicorns, with 47 companies achieving a valuation of $1 billion or more, compared to 42 unicorns in China. So far in 2022, India has seen the emergence of 21 new unicorns, compared to China’s 7. At the current rate, India is on track to overtake China in global unicorn share by 2024/25.

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A total of $120 billion has been invested in India in the last 10 years, of which 50% has been in the last 2.5 years alone. While the average 2-year budget at the beginning of the decade was in the range of 1.6 billion dollars, in the last 2 years it has reached an average of 26 billion dollars.

The report predicts that India will be heavily in recession compared to its peers, with inflation at a lower rate than many of its G-20 peers (7% in India compared to 81% in Argentina, 10% in the UK). and 8.3% in the US by November 30, 2022) and with the Indian rupee outperforming most peers in terms of high forex reserves.

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