After the funding surge in 2021, the Indian startup ecosystem is stabilising, with metrics returning to 2020 levels. The past 10 months have shown investors concentrating more on genuine growth and profitability metrics, leading to a tempered investment environment.
Despite having over $18 Bn in dry powder as of December 2022, startup investors have been circumspect. Only one startup, Zepto, achieved unicorn status, and many late-stage funding rounds fell short of reaching a $1 Bn valuation.
From January to October 2023, Inc42 reports that 718 Indian startups raised about $8.3 Bn, nearly matching the $8.7 Bn raised during the same period in 2020 by over 650 startups.
Prominent funding rounds in 2023 include Lenskart ($500 Mn), DMI Finance ($400 Mn), Ola ($384 Mn), and PhonePe ($350 Mn).
However, a substantial year-over-year drop in both the number of deals and the funding amount is evident. In 2022, Indian startups raised $22 Bn across more than 1,200 deals.
The ecosystem also experienced a 52.96% decrease in M&As, down to 103 from 219 in the comparable 2022 period.
Here are some other key trends observed during the last 10 months.
Number Of Funded Startups Continue To Decline
Between January to October 2023, 718 startups raised funding. This is a decline of almost 40% from 1,200 startups who raised funding in 2022 for the same period.
Although, the number is a bit higher than 650 startups raising funding in 2020.
In terms of funding, the maximum decline has been seen at late stage startups, which raised $610 Mn, down 56% on a year on year basis.
On the contrary, in terms of number of deals, seed stage saw the maximum fall having 30 deals, down 43% on an year on year basis. To be noted, India’s seed stage startups recorded a massive funding influx during the second half of 2022, raising $1.02 Bn.
October Shows Signs Of Recovery
On a positive note, the month of October showed signs of revival after months of fluctuations. The Indian startups raised $1.10 Bn, a slight uptick from $960 Mn raised in previous month.
The rise in funding in this particular month can be attributed to the festive rush and the anticipation of high growth which push founders to invest in marketing and expansion opportunities.
Nonetheless, the monthly deal count declined significantly by 24.7%, dropping from 89 in September to 67 in October. This suggests that while investors are committing larger sums than in previous months, they remain selective, with only a limited number of startups meeting their criteria.
Cleantech Sector Dominate Funding In October
In the aggregate for the past 10 months, ecommerce has consistently led the pack. Yet, in October specifically, cleantech and fintech took the spotlight.
Ola’s substantial $384 Mn funding round significantly bolstered the cleantech sector, while neobank Zolve’s $100 Mn debt funding round provided a strong lift to the fintech industry.
Cleantech startups raised a total of $440 Mn in funding, followed by fintech ($255 Mn) and ecommerce ($148 Mn). In terms of number of deals, fintech and ecommerce top the charts with 17 deals each followed by enterprisetech (7) and deeptech (6).
The Road Ahead
According to analysts and investors Inc42 interacted with said that the startup ecosystem is now marked by more balanced valuations. Both investors and startups are exercising caution, carefully considering the long-term implications of fundraising.
Despite holding significant dry powder reserves, experts foresee a cautious yet gradual uptick in startup funding in the months ahead. Simultaneously, the investor community is bracing for an increase in startup IPOs. As companies increasingly focus on stability and profitability, things are expected to stabilise in the times to come.
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