RTP Global’s 2024 plan offers another hint of a thaw in startup funding winter

This is another indication that India’s yearslong startup funding winter could be thawing. Since the start of the year there have been 122 early-stage deals – including series A and series B rounds – worth $1.05 billion in India’s startup ecosystem, according to data from Tracxn.

RTP, which typically strikes six to eight deals a year, has already wrapped up five deals in the past four months and expects to strike another five by the end of 2024. "We are very bullish on India and we will probably deploy more than what we planned to at the start of the year. If the momentum continues, we expect to do about 10 deals this year," Garg said, adding that the quality of companies being launched has drastically improved.

Funding winter ending?

As valuations become more realistic and companies focus on product-market fit, those with a path to profitability have managed to secure successive rounds of funding despite a broader liquidity crunch and macroeconomic uncertainties.

This was not the case during the pandemic, when capital was more readily available. This led to inflated valuations and an abnormal number of unicorns (startups valued at $1 billion or more). This had ripple effects in 2022 and early 2023 as investors stopped writing large cheques for businesses and became more picky.

Also read: Funding winter for startups likely to thaw this year

As markets stabilised, some fledgling companies went bust while others changed their business models to attract funds and survive the downturn. "We started seeing many companies that had raised seed funding come back to us towards the end of last year," Garg said. “Today, the market is in very good shape as we have enough time to do our due diligence before giving a term sheet. Founders have also become a lot more reasonable."

According to Tracxn data, there have been 33 late-stage deals (series C and above) since the start of the year, compared to 36 during the same period last year. A total of $1.38 billion has been raised so far, compared to $2.24 billion in the same period last year.

Garg said companies will take time to mature and become unicorns. "While good companies were also funded in 2021, you can't build sustainable unicorns in just three to four years. Many companies today are building solid fundamentals and will take five to six years to hit a billion-dollar valuation. We'll see that cohort achieve unicorn status in 2026-27."

Last month we reported that Indian unicorns are finding little love this year, as investors hitch their wagons to smaller startups. There were 318 deals in companies valued below $1 billion this year, five in those valued at $1-2 billion, one in a startup valued at $2 billion, and none in those valued at more than $3 billion, according to Tracxn data.

Quick commerce back on the radar

While tier-2 and tier-3 towns are generating significant revenue for startups, consumer-facing businesses are now also tapping quick commerce to grow in the metros, Garg said.

"Two years ago, everybody in the ecosystem including us had written off on quick commerce as it required plenty of capex and high operational efficiency. Even the larger e-commerce players were not profitable," he said. "However, as its use-cases have diversified, today it is back on our top 5% affluent consumer proposition and we see quick commerce as very real competition to e-commerce majors."

Also read: How India could become the world’s first quick-commerce success story

Quick-commerce firms (such as Zomato’s Blinkit, Swiggy Instamart and Zepto), which typically deliver groceries and other essentials in 10 minutes, took off during the pandemic and are now seeing demand grow in other categories such as beauty, fashion and electronics.

Focus on emerging sectors

Founded in 2000, RTP Global has about $3 billion in assets under management and has backed more than 100 companies. It is currently investing from its fourth global fund – its largest ever, at about $1 billion – which it raised last year. Its two previous funds, which were also invested in India, were about $650 million and $220 million in size.

It plans to invest a third of the $1-billion fund in India & South-east Asia and the rest in other markets, including the US, UK and Europe. Half of the fund is meant for early-stage investments while the rest will be used to top-up winning investments. The company plans to make 20-22 investments in India and five to six in South-east Asia. It will dedicate about 10-15% each to emerging sectors such as electric mobility.

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"I think nearly 45-50% of the fund will go towards new sectors while the remaining will go to the usual bread-and-butter areas such as consumer, SaaS and fintech," Garg said. RTP is largely sector-agnostic, with investments spanning e-commerce, education, healthcare, software-as-a-service and transport & logistics, among others.

Garg said there were common themes emerging in India and the broader Asian markets, with many countries in the region building some of their main businesses in areas such as e-commerce, logistics and payments. "Since many of these were already built in India in the last five to seven years, an investor can apply those learnings there as well, but you also have to adapt yourself to the consumer dynamics, which can be very different there," he said.

RTP Global typically invests $1-10 million in early-stage firms that are valued at $25-$70 million. Its recent transactions include a $4-million investment in Noida-based fixed-income startup Dexif. It also led a $2.5 million round in SydeLabs, an artificial intelligence security and risk-management startup.

Before he joined RTP in 2022, Garg had a stint at Tiger Global, where he monitored startups such as Delhivery, Blinkit and Inshorts. He also worked at Flipkart for more than eight years.