IPO rush sparks optimism as Indian start-ups show resilience in Q2

Amid a prolonged funding winter, the Indian start-up ecosystem has shown resilience with Swiggy’s much-anticipated IPO setting a high benchmark in the market. In a promising sign, most startups delivered steady performance in Q2, supported by renewed investor confidence and significant market interest.

According to Milan Sharma, Founder and MD of 35North Ventures, Q2 saw an improved performance in the space with an 18% increase in deal volumes, with venture capitalists pouring $8.3 billion into 233 deals. “In Q2, the performance was significantly better compared to Q1 2024, marking an impressive comeback,” he added, crediting sectors like edtech, fintech, and e-commerce as key growth drivers.

The quarter also saw Indian startups make an impressive comeback, with funding reaching an eight-quarter high, Sharma added. This growth is said to have been powered by a surge in IPOs, several high-value deals, and a renewed wave of investor confidence. Edtech, fintech, and e-commerce were the key sectors driving this recovery.

“In Q2, the Indian startup landscape showed remarkable dynamism. We have witnessed a noticeable uptick in the number of startup pitches, particularly from first-time founders, as well as heightened investor interest in the startups we back,” said Ninad Karpe, Founder & Partner of 100X.VC.

Sharing more on the food tech sector, Teja Chekuri, Founder, Full Stack Ventures said, “In the second quarter of 2024, the food tech sector attracted significant investments despite declining deal value due to broader economic challenges. Key subsectors such as alternative proteins and online grocery platforms continue to draw substantial attention.”

The Performances

Despite a drop in net profit, Zomato maintained constant sales growth. While Blinkit saw revenues double even as losses increased, its consolidated net profit plummeted by 30% to Rs 176 crore in Q2. Blinkit, specifically, experienced its revenue more than double to Rs 1156 crore

Fintech player Paytm posted a profit of Rs 930 crore in Q2 FY25, reversing a loss of Rs 292 crore YoY. But, their total income for the quarter summed up to Rs 1834 crore, which dropped 31% from Rs 2662 crore.

Lenskart has recorded Rs 5427.7 crore as revenue from operations in FY 2023-24. This is 43% more than Rs 3788.03 crore the company posted during FY 2022-23. The company’s total revenue for the fiscal was 42.8% higher at Rs 5609.87 crore when compared to Rs 3927.9 crore last fiscal.

Travel players like MakeMyTrip posted soaring profits, though rising marketing expenses remain a focus. It generated revenue of $211 million in the quarter ended September 30, 2024, an increase of 25.1% over revenue of $168.7 million in the quarter ended September 30, 2023.

However, the growth charts haven’t seen skyrocketing green graphs for all. There have been some that have been growing sluggishly too. 

Another travel player Ixigo saw its consolidated net profit decline by 51%to Rs 13.08 crore in Q2 from Rs 26 crore YoY. Its decline was largely due to higher tax expenses of Rs 5.26 crore during the quarter.

Marketing spends soar

Marketing expenses have surged as companies seek to maintain customer engagement and brand relevance in an increasingly competitive landscape. Nykaa reported a 40% YoY increase in marketing expenses, from Rs 169 crore in Q2FY24 to Rs 236.5 crore in Q2 FY25. In QoQ terms, this was a 17% growth.

Zomato posted its advertisement and promotional expenses at Rs 421 crore, which were up 18.5% from the previous year’s corresponding quarter. 

For MakeMyTrip, marketing and sales promotion expenses increased by 43% to $35.8 million (Rs 302 crore approx) in the quarter ended September 30, 2024 from $25 million (Rs 210 crore) in the quarter ended September 30, 2023. 

The company stated this was primarily due to an increase in variable costs and discretionary expenditures such as expenses on events and brand building initiatives in response to the robust travel demand in India.

Marketing spends increased 20%, from Rs 293.8 crore to Rs 352 crore in the current fiscal for Lenskart.

Stocks speak

This quarter saw moderate growth for Zomato’s stock price. Starting at Rs 203.97 on July 1 and closing at Rs 273.30 on September 30, the stock saw a modest increase of 33% over the quarter. This period also included notable volatility, with prices fluctuating between a low of Rs 217.91 and a high of Rs 267.09.

Nykaa’s stock experienced 11.2% increase in closing price over Q2 FY25, moving from Rs 175.95 on July 1 to Rs 195.61 on September 30. The stock demonstrated strong upward momentum within the quarter, despite fluctuations between a high of Rs 226.77 and a low of Rs 171.39.

During Q2 FY25, Paytm’s stock demonstrated steady growth with a strong 67% increase in its closing price, rising from ₹Rs 411.85 on July 1 to Rs 688.30 on September 30. Its stock showed a stable upward trend with no major highs or lows during the quarter. 

The share price of MakeMyTrip increased 7.9% in the second quarter of FY25, from USD 86.09 on July 1 to USD 92.95 on September 30. During the quarter, the stock peaked at USD 110.24 before dipping to finish with a smaller gain. There was significant volatility noticed between USD 83.20 and USD 110.24.

The Funding Scene  

After a prolonged ‘funding winter’ through 2023, India's startup ecosystem looked poised for a rebound in 2024. Investment levels had plummeted to just $11 billion in 2023, a significant drop from the $42 billion seen in 2021. 

This drastic contraction left many startups in survival mode, trimming expenses, focusing on core offerings, and striving for profitability in a capital-constrained environment. Both analysts and founders hoped 2024 would usher in a revival, with increased IPO activity and fresh capital to reinvigorate the sector.

Venture capital (VC) funds now place a huge emphasis on innovation, especially in areas like health tech, fintech, green energy, artificial intelligence, and e-commerce, Milan Sharma shared. They’re really drawn to start-ups that show strong unit economics, have experienced teams, and exhibit resilient growth potential with the ability to scale. 

VC funds are prioritising startups with strong unit economics, scalability, innovative business models, experienced leadership, and large market opportunities. As sustainability and digital food solutions remain central to growth, companies aligning with these trends and ensuring regulatory compliance are positioned for long-term success and disruption within the food landscape, said Chekuri.

According to Karpe, “While traditional sectors like health tech and consumer remain strong, venture capitalists are now increasingly eyeing AgriTech and DeepTech. These sectors present unique opportunities for scalable impact and transformative growth, making them particularly attractive for investors looking for high-potential ventures. The shift towards these areas highlights an evolving investment landscape towards pioneering solutions with long-term value.”

Meanwhile, Somdutta Singh, First-generation Serial Entrepreneur, Founder and CEO Assiduus and Angel Investor believes Q2 2024 was challenging for Indian startups, particularly in terms of VC funding. This downturn has been largely influenced by a global investment climate that can be characterised by caution and volatility, with geopolitical tensions and rising interest rates creating an uncertain environment for investors.

“VC funds are focusing on sector resilience, late-stage investments, and AI/technology. Fintech remains strong, with high funding in Q2 2024, reflecting investor confidence. Late-stage investments surged 115% to $2.1 billion, showing a preference for established companies. Despite a Q2 dip in AI funding, long-term optimism for AI applications persists,” she further explained.

As 2024 continues to unfold, the Indian startup ecosystem finds itself at a pivotal juncture. With notable IPO successes like Swiggy setting high benchmarks, investor confidence is beginning to show signs of a comeback, though the path ahead remains complex. 

The funding landscape is still cautious, with investors being more selective and startups pressured to showcase profitability or strong revenue growth. The recent uptick in pitch activity, especially from new founders, signals a hopeful return of entrepreneurial enthusiasm, yet many companies still grapple with balancing high growth with operational efficiency.