50% of investment portfolios of venture capitalists from smaller cities by 2025: Experts

Thiruvananthapuram: Fifty per cent of the investment portfolios of all venture capitalists would be from Tier II and III cities of India by 2025, Anil Joshi, managing partner of Unicorn India Ventures said.

Joshi was speaking at a panel discussion on startup funding at the three-day Global Huddle 2023 that got underway here on Thursday.

He made a strong plea to other investors to look beyond major tech hubs like Bengaluru and Gurgaon and park their funds in nascent enterprises in smaller cities with high growth potential.

"In the last financial year, fund flow into startups saw a dramatic decrease across the nation and Kerala was no exception. However, in Kerala the downslide was mostly on the top of the pyramid or big ticket deals, and there were enough funding activities at the bottom of the pyramid made up of early-stage firms," said Joshi.

He said investment firms like his search for good companies in Tier II and III cities because they tend to focus on solving problems that exist around them. "Normally, not a single VC will look at a company that is working to solve the problems of people working on manholes. Moreover, the potential customers were governments. But they managed to do it," added Joshi.

Joshi is one of the pioneers of angel investments in India whose venture fund has been approved by the SEBI, revealed that of the 38 investment portfolios his firm currently holds, 40 per cent are in Kerala-based firms.

Vineet Mohan, co-founder of Konglo Ventures which has invested over seven million dollars in startups so far, also backed Joshi's view that investors are still looking for companies that are innovative, have good value, and sound business plans.

"We should stop celebrating the valuation status of companies that reach the unicorn stage (a valuation worth one billion dollars) as investors focus more on the value, scaling up possibility and sustainability," said Mohan.

Despite a 50 per cent year-on-year drop in the overall funding activities in the last financial year, Mohammed Shoeb Ali, co-founder of Transition VC, pointed out that the climate tech sector has actually seen a rise in investments.

"Areas like clean energy, green mobility and other similar areas will attract more investments in the years ahead. A recent survey showed that there is a need for more technology and innovations if the world is to reach the carbon neutrality goal and it is an area where startups have space to grow globally," said Ali.