Funding in Indian startups in Q3 2022: Down 80% YoY, indicating tough time ahead for entrepreneurs

There is a tough time ahead for Indian startups seeking to raise funds. In Q3 2022, the funding in Indian startups declined 80% YoY, and over 57% MoM basis, indicating that investors are no more willing to jump on pitch decks out of FOMO.

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There is a tough time ahead for startups in India who are seeking to raise funds. The funding in Indian startups dropped a massive 80% YoY to just $3 billion in Q3 2022, according to a recent Traxcn report, titled “Geo Quarterly Report: India Tech Q3 2022”. Interestingly, it is a significant 57% decline when compared to the previous quarter.

The Indian startup ecosystem experienced its golden era in 2021, when the total funding reached its peak. The startups raised a whopping $14.9 billion in Q3 2021, bringing the total to $40.8 billion by the end of December. However, the funding scenario has shifted dramatically in 2022. It is surprising to see how startup investments are falling month after month; it was $1.1 billion in July, $885 million in August and $752 million in September 2022.

The average ticket size has also reduced across all funding stages during the third quarter ended in September. It is important to note that Indian startups expecting their late-state funding were severely let down by investors and venture capitalists. The late-state funding saw the biggest drop of over 70% YoY, from $142 million in Q3 2021 to $42 million in Q3 2022. These data indicate that investors are hesitant to make large investments until economic conditions stabilise.

India is currently experiencing a funding slowdown which is expected to continue for the next 12-18 months and the effects of the funding slowdown are expected to intensify going forward, said Neha Singh, Co-Founder of Tracxn.

So what are the reasons behind this unexpected slowdown in funding for Indian startups in 2022, particularly in Q3?

Why is funding drying up for Indian startups?

Startups in India witnessed an unprecedented surge in VC investments in the last few years, with 2021 leading the record-breaking funding rounds. However, this year, investors have now become cautious about investing their millions in Indian startups mainly due to the ongoing conflict between Russia and Ukraine, losses due to the Covid-19 pandemic, high attrition, rising interest rates, and concerns about impending recession.

“Earlier, every Tom, Dick and Harry would get funded, but over the past few months, we investors have been exercising caution because of which you’ll see deal volumes decline. Investors are done losing money. We’ve been now asking for more details on the unit economics, revenue growth trajectory, business plans, profitability and scalability, which wasn’t the case earlier … Now, this cautiousness is going to stay for longer, and the quality of startups being picked will become better and more realistic valuations will prove to be good entry points — so I quite like this setting,” Brijesh Damodaran, managing partner, Auxano Capital, said.

Top Sectors, Startups Received Most Funding in Q3 2022

The top five sectors that received the most funding in Q3 2022 were Alternative Lending ($415 million), Genomics ($231 million), Payments ($192 million), Healthcare Booking Platforms ($160 million), and Electric Vehicles ($144 million). Genomics had received over $231 million in funding, which is more than the total funding received in the year 2021.

A total of 334 funding rounds were closed in Q3 2022, down from 674 in Q3 2021. Interestingly, the top five funding rounds were completed by EarlySalary ($110 million, Series D), CleverTap ($105 million, Series D), OneCard ($102 million, Series D), OneScore ($101 million, Series C), and 5ire ($100 million, Series A).

The report further reveals that the five Indian startups that raised funding rounds of more than $100 million in the third quarter were EarlySalary, 5ire, InsuranceDekho, OneCard, and BookMyShow. While the most active investors were Blume Ventures, Beenext, IPV, Sequoia Capital, Accel, Catalysts and Surge.

Bengaluru, also known as the IT hub of India, attracted the most investments from investors and venture capitalists in Q3 2022, totalling $796 million. This is followed by Mumbai ($548 million), Delhi NCR ($448 million), Gurgaon ($240 million), and Delhi ($106 million).

Other noteworthy findings of the Tracxn report were that 134 startups closed Series A+ round, 109 startups closed their first funding round, 3 startups became unicorns, 39 startups got acquired, and 2 filed for their IPOs.

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