Funding to Indian startups tanked 79% in first half of 2023 as top investors sit out

The funding amount also fell about 42 percent month on month, from $948 million in about 53 deals in May.

“Global interest in PE/VC funds may come down in a rising interest rate scenario, because typically if I am getting preference shares or a bond at seven and a half percent of US dollar, why would I want to take that risk in a PE VC fund in an emerging market where I don't know what is going to happen in 10 years. So it's just a little bit of change in risk appetite which happens during political uncertainties,” Rajesh Saluja, CEO and MD, ASK Private Wealth, a player in the Wealth and  Investment Management business, told Moneycontrol.

Saluja believes investors will become risk averse in such circumstances but it is not a long-term issue because as things settle down, money will chase growth again.

Meanwhile, the valuations of Indian technology companies have also declined over the past year, following the exuberance of the Covid era. To be sure, India's unicorn ecosystem, ranked the third-largest globally, hasn’t had any additions for over nine months and there is no indication of any startup achieving the qualifying $1 billion valuation milestone any time soon.

Saluja said that startups are also deciding to stay away from equity in the current market and going to HNIs, ultraHNIs, or venture debt fund funding, where there is some visibility of cash, but no need to dilute equity.

Moneycontrol recently reported that out of about 122 startups in India that Hurun listed as likely to enter the country's unicorn club last year, it has dropped about 19 of them this year.

“A high performing super valuable company would not want to raise funds when the market conditions are low. They would just want to wait because they will get priced significantly lower than a bull market in a bear market. So wait for it to be the bottom, then possibly you would see the unicorns come back,” said Anas Rahman Junaid, MD & Chief Researcher, Hurun India.

Stage-wise funding

In the January-June 2023 period, 170 early-stage deals were recorded. Deals in this stage tanked about 61 percent from the first half of 2022 which stood at 435 deals. In terms of money invested, startups received $624 million, a 65 percent decline from  $1.8 billion recorded in the first half of 2022.

Growth and late-stage investments also remained under pressure.

In the first half of 2023, startups in this stage secured $3.2 billion in funding across 123 deals against $16.6 billion raised across 292 late and growth-stage deals in the same period in 2022.

This also comes at a time when a number of corporate governance lapses at Indian startups have come to the fore, making investors more cautious. With startup party of 2021 coming to an end, companies like BharatPe, Trell, Zillingo, GoMechanic, and more recently, Mojocare has come under fire from stakeholder for corporate governance lapses.

“My advice for promoters and founders of startups is not to take funding at a very high valuation. It will bring the pressure on delivery, sometimes that can make you very, very short term-oriented, rather than thinking long term. You either start making excuses or you do something which is incorrect. So one has to really be sensible while raising money to see that they're not getting carried away by the euphoria but building the right business model and focusing on delivering quality business,” ASK’s Saluja added.

Top investors and deals of H1 2023

Peak XV Partners (previously Sequoia India) led the charts making about 21 deals in the first half of 2022, followed by Accel India with 11 and Blume Ventures with 10 deals. Others in the list of most active investors included Rainmatter Capital, Anicut Capital and Lightspeed Ventures.

Among top deals of 2023 so far, eyebrand Lenskart found the top mention raising $500 million in March followed by Builder.ai with a $250 million fundraising in May. Infra.market, Zetwerk and InsuranceDekho also raised $150 million each.