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VC funds flow to startups dries up 25% in first quarter of 2023, says KPMG

The latest figure was also the joint-lowest since the second quarter of 2018, when Indian startups raised $1.7 billion.

April 21, 2023 / 04:21 PM IST
VC funding

VC Funding

Venture capital (VC) funding into Indian startups dropped to $2.1 billion in the March quarter, thanks to fewer large-ticket deals, KPMG’s latest venture pulse report showed.

That translates to a decline of around 25 percent from $2.8 billion that VCs infused into Indian new-age companies during the October-December period last year. In comparison, VCs pumped in a total of $9.3 billion during the March quarter of 2022.

The latest figure was also the joint-lowest since the second quarter of 2018, when Indian startups raised $1.7 billion. VCs had deployed $2.1 billion even in the April-June period of 2020, data from the report showed.

VC funding dropped 25 percent despite giants like PhonePe raising $650 million, eyewear maker Lenskart securing $500 million from ADIA, both in the same quarter. Meat delivery startup FreshToHome’s $104-million round led by Amazon Smbhav Venture Fund, Mintifi picking up $110 million from Premji Invest and others, and KreditBee mopping up $120 million from Advent International and others were the other large ticket rounds that materialised in the quarter.

Single rounds of $100 million or more are classified as large ticket rounds. “The biggest change in India is that the euphoria for deals has died down. The fear of missing out (FOMO) has gone. The big-ticket deals have also dried up, which has had an outsized impact on our total investment numbers,” said Nitish Poddar, partner and national leader, private equity, KPMG India.

“But despite the visible decline, it’s important to know that a lot is still happening in India. The macros here are still very good. We’re still seeing a lot of funding in pre-series A deals. And we’re still seeing a lot of new micro funds being raised in the country — funds under $100 million with check sizes from $1–5 million,” Poddar said.

In fact, a recent report from consulting firm, Bain showed that the number of active micro VC funds in India increased to over 80 in 2022, from around 65 in 2021. Micro VCs are firms that typically have funds between $10 million and $60 million in size. These generally invest in pre-seed, seed, and Series A deals (follow-on rounds) with cheques that are lower than $1.5 million.

Thanks to micro VC firms mushrooming, the investor landscape is likely to see participation from a wider base, which is likely to propel the funding activity in the third largest startup ecosystem in the world, Bain said in the report.

Tushar Goenka
first published: Apr 21, 2023 02:39 pm