The venture capital funding for Indian tech startups has dried up in 2022, after shattering all previous records in 2021. The VC investment in Indian startups dropped a notable 32.5% YoY in 2022, to just $23.95 billion, according to Venture Intelligence. The number of VC deals also declined from 1,215 to 1,130 in the span of 12 months.
Interestingly, the Indian startup ecosystem entered a golden era in 2021 when the total funding reached its peak. Startups in technology attracted the most funding. Last year, VC funding in tech startups hit a record high of $35.46 billion. The funding scenario, however, has drastically changed in 2022.
Late-Stage VC funding in Indian startups declined over 50%
It is worth noting that the tech startups seeking their late-state funding were severely let down by investors and venture capitalists. Surprisingly, the amount of late-stage funding (Series D and above) has dropped more than 50%, from $24.91 billion in 2021 to just $11.70 billion in 2022.
The number of late-stage funding deals in Indian tech startups has also fell noticeably 31% YoY, from 177 to 122 during the same time period. The report further reveals that the top five funding rounds closed in the first four months of the year.
These figures clearly indicates that investors and venture capitalists will continue to be wary of making large investments until the economic conditions stabilise.
“This year, a lot of startups haven’t raised (capital) because they are all hoping that they will grow into their future valuations and want to be priced at a premium,” Pankaj Naik, co-head, digital and technology investment banking, Avendus Capital, told ET.
Early-stage startup funding 2022
This year has seen an increase in early-stage funding deals, including seed and Series A rounds, albeit at much slower rate than the previous year. Venture capitalists invested a record $5.40 billion in early-stage startups in 2022, up over 44% YoY from $3.74 billion in 2021.
However, last year, India recorded a whopping 165% YoY growth in seed and series A round funding rounds.
Most tech startups seeking for their Series B and Series C investments, left disappointed this year. The growth-stage funding rounds (Series B and Series C) remained flat, indicating VCs are unsure about their future growth. The growth stage startups in tech sector received $6.84 billion through 221 deals in 2022, up from $6.82 billion through 231 deals in 2021.
The report also reveals that India’s top startup hubs such as Bengaluru, Delhi-NCR and Mumbai are still leading in terms of VC funding. The relatively smaller cities such as Chennai, Hyderabad and Pune saw an increase in funding, though.
Top 5 Sectors for VC Investments
The top five sectors that received the most VC funding in 2022 are ecommerce, fintech, enterprise, logistics, and education.
Indian e-commerce startups raised the most funding in 2022, however, the amount and number of deals, both are quite disappointing when compared to the previous year. The total amount of raised by startups in e-commerce sector was $5.25 billion in 2022, through 148 deals. While in 2021, the ecommerce startups raised a record $10.04 billion in VC funding, through 209 deals.
Similarly, Fintech startups raised $5.2 billion in funding in 2022, down from $7.99 billion in 2021.
Among top 5 sectors, only the enterprise sector recorded an appreciable 31% YoY growth in VC funding, from $3.72 billion in 2021 to $4.88 billion in 2022.
Sequoia Capital India emerged as the most active investors in 2022, with 73 deals closed. However, last year, it completed 110 deals. Mamaearth, One Card, and Darwinbox are Sequoia Capital’s top three most significant investments in 2022.
Accel India and Better Capital each signed 57 deals in 2022.
Tiger Global, which was one of the most prominent investors in Indian tech startups last year, signed only 50 deals this year.
The top five deals of 2022 include Dailyhunt (raised $805 million), Swiggy (raised $700 million in January), Byju’s (raised $665 million in March), Polygon (raised $450 million), and Uniphore (raised $400 million in February).
One thing is sure, there is a tough time ahead for tech startups in India who are seeking to raise funds.
