The year 2023 will be the beginning of the India tech stack going global with cross border UPI, open APIs to enable eKYC among other services being leveraged by other countries, a report by global management consultancy Bain & Company and Indian Venture and Alternate Capital Association (IVCA) said.
While in line with global funding slowdown, India too saw a dip in deal value by 33 percent from $38.5 billion to $25.7 billion over 2021–22, in the longer term global investors remain bullish on the India story backed by solid macro-fundamentals, a large consumption opportunity, a sizeable workforce entering the formal economy, a digitally enabled population, and a deepening innovation ecosystem, the report said.
“SaaS and fintech will remain significant—while regulatory oversight may have some effect on fintech, focus on globalisation of the India Stack (e.g., cross-border Unified Payments Interface [UPI], identity, cross-border commerce) is likely to open up new avenues,” Bain & Company said.
Overall, Software-as-a-service (SaaS) and fintech continued to see momentum relative to 2021, growing from around 25% to ~35% of the total funding in 2022. Funding grew 1.0x in SaaS, led by increasing depth in assets, and 0.9x in fintech, led by innovation in emergent segment. SaaS raised over $4 billion in investments in India.
The year 2022 also saw new emerging segments like EV, agritech and AI gaining limelight. EVs grew 2.4x in overall investment value due to policy led cost competitiveness, growth in adoption, innovative business models and broader interest across the value chain.
Agritech saw its highest funding in years in 2022 as total investments crossed $500 million led by few large players demonstrating innovation & scalability. Other emerging deep tech segments, such as generative AI, space tech and climate tech gained momentum led by global megatrends.
One of the biggest losers was the Consumer tech segment with investments declining from ~$20 billion to around $10 billion as high cash burn across segments drove investor caution and megadeals.
In 2023, startups will remain laser-focused on unit economics, the report said, while some M&A-driven consolidation and potentially flat or down rounds may be in the offing as investors revaluate assets in their portfolios.
Meanwhile, late-stage start-ups will continue to focus on profitability and conserve cash for a longer runway.
Non metros raised funds
Funding to startups in non-metros grew to 18 percent share and 9 out of 23 unicorns added in the year emerged from cities outside of the top 3 metros indicating a shift to more democratic funding geographically.
Within metros, of the $25.7 billion funding, Bengaluru continued to attract almost 45 percent of total funding in 2022 but down from 56 percent share in 2021. This was followed by NCR attracting 24 percent and Mumbai getting 13 percent.