Winter may get longer- Start-up investors’ circumspection may persist in 2024 as most businesses are still burning cash

Winter may get longer: Start-up investors’ circumspection may persist in 2024 as most businesses are still burning cash

If numbers ever told a story, it was the $8.3 billion that investors put in start-ups last year—the smallest commitment in five years. With two-thirds of this amount going to fintechs, e-commerce and enterprise technology, it was evident that investors were no longer willing to bet on everything that came their way. In fact, the huge mark-downs showed many investors acknowledging that their investee firms weren’t worth quite as much as they had earlier believed. Although there is some $10 billion of dry powder, caution and circumspection will persist in 2024 as most businesses are still burning cash. Moreover, like last year, private equities and venture capital firms will keep shying away from new businesses—seed-stage start-ups pulled in 72% less in 2023 than they did in 2022. That means there could be fewer new start-ups until there is more confidence in the existing models and the environment. Inc42 estimates that 2022 and 2023 together saw 1,140 new start-ups, way lower than 1,400 new ventures in 2021.

To be sure, the losses at many of the start-ups have narrowed in this financial year. However, the many disruptions in terms of competition, stricter regulation or new technology have left many others in a shambles. Take the case of Dunzo, which never seems to pay salaries on time. One casualty of tighter regulation has been PayTm. The lender has been compelled to scale down operations in some profitable areas because the rules have been tightened. Moreover, the competition in the fintech space is set to get intense with Jio Financial expected to go all out this year.

Last year was a comeback year for new-age technology companies (NATC). After capitulating in 2022, 14 of them added a combined $12 billion in market capitalisation. The successful listing of Honasa will encourage more start-ups to go public in 2024. In fact, much of the capital waiting to be deployed could be invested in pre-IPO rounds or in late-stage businesses that are likely to hit the market in 2025. Other than that, money will flow mainly into start-ups in AI, deep-tech and localised language learning models.