Will Startup M&As Pick Pace In 2024?

Investing in promising startups is exciting. With the Indian startup ecosystem now steering ahead with an ecosystem encompassing 68K+ tech startups and 9.7K+ investors, the opportunities to invest as well as gain exceptional returns are huge.

According to Inc42’s survey of 75+ Indian investors, 56% of stakeholders marked exits from their portfolio startups in 2023. Further, 36% of Indian startup investors claim to have recorded 2X-5X returns on exits in 2023.

Even though M&As were nearly half (123) in 2023, compared to 200+ in both 2022 and 2021, as many as 55% of the investors surveyed believe that 2024 will be a good time to make an exit. Interestingly, 95% of these investors accepted that an initial public offering (IPO) would be the most popular exit route for startups in 2024.

It is imperative to mention that Japanese conglomerate SoftBank fully exited PB Fintech, the parent entity of insurance aggregator PolicyBazaar, at the start of this year, scoring returns of around $650 Mn on its investment. The Japanese investor is now looking at Swiggy’s IPO in mid-2024 and expecting a major cashout.

Experts believe that 2024 will see even more Indian companies taking the IPO route, given that the benchmark indices, Sensex and Nifty50, are hovering around their all-time high levels.

This is also expected to result in a surge in IPOs of new-age tech startups. Some of the other key IPOs expected in 2024 are Navi Technologies, GoDigit, PayMate, Awfis, Portea, Mobikwik, Ola Electric and OYO.

M&As To May Remain Slow

Mergers and acquisitions (M&A) is another key exit strategy that startup founders and investors will be seeing exercising. The number of M&As in the Indian startup ecosystem almost halved to 123 in 2023 from 240 deals in 2022.

Given the abysmal funding performance of 2023, the Indian startup ecosystem could witness another year of slow M&A activity in 2024. However, with the US Federal Reserve and several major central banks looking to cut interest rates in 2024, M&As might again rise towards the end of 2024 and further flow into 2025.

According to Bhaskar Majumdar, managing partner, Unicorn India Ventures, the fintech sector is expected to see a big consolidation wave this year. He is of the view that the Reliance group would look to scale its digital-first business on the back of acquisitions.

“This will happen right across the spectrum to some niche early stage, but mostly in the mid and late stage companies. Other than this, we will see acquisitions taking place in retail tech as well, as more agile retail tech companies will look to acquire scale by acquiring the older companies,” he added.

Also, investors are looking at D2C brands to go for an increased M&A activity in 2024, as many D2C brands face a growth ceiling beyond a certain point.

AI and generative AI startups solving niche problems will also get acquired as larger companies look to leapfrog into the AI revolution. Some sectors such as edtech will likely see a slowdown in M&A compared to previous years.

“Startups that have raised Series B and Series C rounds are likely to see more M&A activity and may struggle to raise follow-on capital or go public. This could be due to the inability to grow profitably or simply hitting a growth ceiling,” Sukhmani Bedi, a partner at Orios Venture Partners said.