2024 VC Trends: Focusing on AI Startups and Cut-Down Customer Acquisition

2024 VC Trends: According to Vinay Bansal, a partner at Physis Capital, Indian entrepreneurs are prioritizing customer retention over acquisition costs. He went on to say that because tier II and tier III locations are more affordable for companies looking to slash expenses, they have become the hot spots for talent and outsourcing.

Some Advice for Enduring the Funding Winter

Startups focus on cash optimisation, streamlining operations, and employing proven marketing strategies for efficient customer acquisition and retention during a funding winter,” he said. For long-term viability, it becomes imperative to choose runway extension over capital intensity, necessitating the delay of significant capital investments.
“For sustainable growth, founders need to refocus on revenue generation, with a particular emphasis on lower CAC and higher client retention. In order to find businesses with the greatest chance of success, investors must conduct thorough due diligence on ambitious founders, he continued.

Customer acquisition cost is abbreviated as CAC. It calculates how much a business spends on bringing in new clients.

Skill From Cities Tier II and III

The interest in talent from tier II and tier III cities was further clarified by Bansal. “There are also lower salary expectations for talent in these areas, which makes the talent pool more affordable for startups”, the speaker stated. For businesses in these areas to succeed and remain sustainable, this cost advantage is essential. This data indicates a paradigm shift in the story of India’s startups, not merely statistical trends.  

The VC continued by saying that growing firms are increasingly relocating to tier II and tier III cities. Tier II and III cities are becoming a prominent role in India’s startup movement, which was formerly limited to large cities. There is a clear change in the entrepreneurial landscape, with at least one acknowledged startup in each State and Union Territory, and half of them thriving in smaller cities. These 640 district-based startups are generating almost 7 lakh new jobs. The significant economic impact emphasizes the contribution of startups to the expansion of jobs in areas that were previously disregarded.

50% of India’s acknowledged startups currently originate from tier II and tier III cities, according to data from the Ministry of Commerce and Industry.

2024 Funding Trends

Speaking about financing patterns for 2024, the venture capitalist stated that artificial intelligence startups will continue to take center stage in the upcoming year.

“AI startups continue to captivate investors moving into 2024, offering solutions in healthcare, finance, autonomous vehicles, and more,” he stated. Due to growing industry push to incorporate AI into processes, the venture capital field expects a comeback.

According to PitchBook, funding for AI-related startups exceeded $68.7 billion in 2023, with generative AI companies such as OpenAI, Stability AI, and Anthropic receiving large sums of money. It is noteworthy that in spite of the current fundraising freeze experienced by startups, artificial intelligence (AI) businesses have managed to secure investment despite challenging market conditions.