Private equity and venture capital (PE/VC) funding to Indian startups have slumped to a 63-month low in January, amid rising macroeconomic uncertainties. This is expected to continue for at least the first few months of 2023.
VC investments in India(MoM)
(Comparing the past two years)
|Month-Year||No. of deals||Amount ($M)|
Indian startups could raise only $630 million in January from PE/VC investors across 121 deals, the lowest by value since September 2017.
According to the figures above, investors have been going slow in funding high-growth ventures since the mid of 2022. This could be due to the uncertainties caused by accelerating inflation, rising global interest rates, the ‘spectre of recession’ confronting the West, and the war in Europe that has disrupted supply chains.
“The first half will be tough for all (global) startups in general and not just Indian. The reason is the tentativeness of funds to invest because of global uncertainties. It is indeed a function of startups needing more time to grow to justify the valuations at which it will be prudent for startups to raise funds,” said Ashish Kumar, Co-Founder, and General Partner at Nandan Nilekani’s Fundamentum Partnership.
In the year 2021, Indian Startups were raising $3 billion monthly on an average basis and at least $2 billion in 2022. In January 2022 alone, startups had raised close to $4.1 billion across 136 deals.
When investors started pulling out of deals because of the worsening macroeconomic environment in the second half of the past year, even then startups were able to raise close to $1 billion monthly on average.
But in January this year, PE/VC funding to India’s startup ecosystem, which is currently the third-largest in the world, dropped more than it did in the US and China, the world’s two biggest startup ecosystems.
According to data, Tiger Global, and Sequoia Capital, two of the country’s most aggressive startup investors, who have earlier backed 38 and 31 of India’s 107 unicorns, did not participate in a single funding round in January.
India’s startups are already scrambling to survive this funding winter. At least 15 startups, including the most-funded unicorns, have let go of close to 2,700 employees in January alone, taking the total tally of layoffs to more than 20,000 since the start of 2022.
“I think 2023 will be tough in general, I can’t say what region will be relatively better but I feel the correlation will be strong globally. So recovery will happen together in terms of funding in startups,” Kumar of Fundamentum added.
He also said that he expects the second half of this year to be “much better.”
According to data, VC firms have raised close to $10 billion for Indian startups since the start of 2022.