2022: Year of the Reset
India is home to the world's second-largest online shopper base and internet user base at 312 million and 692 million, respectively. The increased reach and affordability of internet ($0.17 / 1GB), volume of digital payment transactions ($1.5T) and expansion of logistics infrastructure ($29.5B market) in the country has continued to drive the success of e-commerce and consumer internet companies in 2022. As UPI payments expand beyond borders and Tier 2 and 3 cities drive major consumption, the sector will continue to accelerate tremendously.
In 2022, early-stage companies raised 17% of the total PE/VC funding in the consumer internet and e-commerce sector, as compared to 6% in 2021. While Indian e-commerce and consumer internet companies raised $15.4B in 2022, almost twice the funding in 2020 ($8.2B), only $2.8B of this capital was invested in H2 2022. In contrast, 2021 had seen a massive infusion of liquidity-fueled "tourist capital", making way for cash-pumped growth.
Even as 2022 distanced itself from the spillover of 2021's momentum, funding in deals with round sizes less than $25M continued to attract capital, an indication of resilience in the early-stage ecosystem that is likely to continue on a promising path even in 2023.
Post-pandemic, user behaviour has reset to hybrid formats and business focus has shifted to profitability and high customer LTV. While capital availability in 2023 is not at 2021 levels, an estimated $16B is waiting to be deployed. Entrepreneurs who build with a focus on unit economics, sustainable customer acquisition, superior customer experience and quality governance will continue to onboard strong investor-partners in 2023. We are excited to serve as peers to these smart founders!
Emerging themes in 2023:
1. Technology-led interventions for traditional supply chains, agriculture and clean energy. E.g., supply chain digitisation, AI-backed sowing patterns and pest protection, and interoperability in clean energy.
2. Consumer internet businesses expanding their target market to Tier 2 and 3 cities. E.g., influencer-led social commerce, and monetisable gaming products.
3. Indian entrepreneurs building for India and the world enabled by globalised UPI payments, digitized health records and gamified products. E.g., cross-border payments and shipping, precision care, optimised equipment and pharmaceutical distribution.