Indian startup funding hits 2 year low in Q3 of 2022 at $2.7 billion: PwC India

While a decline in funding is noted across all stages of investment -- early, growth and late -- it has been the least in early-stage deals which contributed around 21 per cent of the total funding by value in third quarter of calendar 2022. It was approximately 12 per cent in the preceding quarter, showing that venture capital (VC) firms continue to back the Indian startup ecosystem.

"It is tough to predict how long the slowdown in funding will last but clearly, both founders and investors are being more selective and cautious in deal-making," said Amit Nawka, Partner - Deals & India Startups Leader, PwC India.

In general, early-stage startups will be able to raise capital more easily as they are typically more insulated than late-stage deals from fluctuations in the public markets, he said.

"However, investors have already raised a lot of capital which needs to be deployed and this will ultimately find its way to the Indian startup ecosystem," he added.

As per the report, growth and late-stage funding deals accounted for 79 per cent of the funding activity in the third quarter of 2022 (value terms). Early-stage deals accounted for 70 per cent of total funding as compared to their 60 per cent share in the second quarter of 2022 (in volume terms).

Average ticket size per deal ranged from USD 4–5 million per deal, it said and added that in value terms, early-stage deals contributed around 21 per cent of the total funding in the third quarter.

"Thirty-eight M&A deals involving startups were executed in Q3 CY22 - 30 domestic, five inbound and three outbound deals. SaaS and EdTech witnessed the highest number of M&A transactions during Q3 CY22 – nine in SaaS and seven in EdTech," the report said.

Edtech company upGrad has been the top acquirer this quarter with four acquisitions – Wolves India, Harappa Education, Exampur and Centum Learning, it said.