News & Analysis

Are VC Funds Ignoring ONDC?

At a time when the entire eCommerce industry in India is hoping to expand their user base using the ONDC networks, VCs are looking elsewhere

Trust the venture funding community in India to look a gift horse in the mouth. At a time when the biggest of digital retail businesses are awaiting India’s shift to a new eCommerce regime governed by the ONDC networks, the VC funding seems to be slowing down for marketplaces such as eCommerce, fintech, food delivery and such like. 

A report conducted by Bain & Company in collaboration with Accel claims that going forward the investors are likely to focus more on proven models and experienced founders, potentially entering into more late-stage deals with higher round sizes.” This is stated in a report on Indian marketplaces put together by the consulting firm and the venture capital company. 


Blame it on global cues

The report claims that dealmaking would be more measured and valuation multiples may witness some degree of rationalization. Of course, they put the blame squarely on the rest of the startup ecosystem, which seems to be bearing the brunt of the global macroeconomic conditions that worsened in the past several months. 

The report says that in the first ten months of the calendar year 2022, marketplaces raised about $4.6 billion, which accounts for a third of the $14 billion that it raised during the same time frame in 2021. “Funds in India are anticipating corrections from last year’s high valuations; valuation multiple compressions in the US markets expected to trickle into some sectors,” the report further added.

Of course, from an Indian perspective, the fact also remains that innovation activity touched a peak immediately after the Covid-19 lockdowns (across both phases) where several startups emerged, and a few of the big tech names added grocery and food delivery services to its portfolio of offerings. 


Prior experience in retail will count

An Accel official was quoted by the ET to say that investors were likely to fund marketplace startups helmed only by founders who already had prior experience in the business. In other words what this means is that investors would only fund ideas that are emerging from a similar idea. So, if you’ve worked at Swiggy and are looking to start a similar venture is welcome.

But then, hasn’t this always been the case with venture capitalists in India? When was the last time we recall a company with the wildest and wackiest idea ever getting funded by them in the past? Most companies that started up in the country have either been a replica or an extension of an idea that came up in either North America or Europe. 

However, the report also hastens to add that companies working in the marketplace tech would need to find solutions that help enter newer territories beyond the tier-3 cities or even shifting their focus on other geographies.


Is ONDC even on their radars?

It also added that opportunities for building marketplaces also exist in gaming, caregiver services, and Web3 projects in India, as similar initiatives have worked out well in markets like the US and China. This sentence alone proves how the venture capital companies work in India and possibly done more harm than good. 

What’s even more interesting is that the report claims that India’s total online marketplace gross merchandise value (GMV) will reach $350 billion by 2027 from the current $100 billion. 

The Open Network for Digital Commerce or ONDC has got everyone, from policy planners to merchants on the streets excited, as it promises a level-playing field for every merchant in the country to expand her / his footprint across geographies. In fact, ONDC CEO Thampy Koshy says the existing eCommerce models would become irrelevant soon. 

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