Funding in Indian startups dipped by 35% (up to 5 December), to $24.7 billion, as compared to the previous year, dragged by a decline in late-stage funding, a report by Traxcn has said.
According to the Geo Annual Report: India Tech 2022, last year, Indian startups raised about $37.2 billion in funding. This year’s late-stage startup funding also declined about 45% YoY to $16.1 billion from $29.3 billion in 2021. Following a similar trend, funding in seed-stage startups also saw a decline of about 38% in 2022.
Amid the funding downturn, sectors including retail, fintech and enterprise applications emerged winners attracting investor interest in 2022. However, despite being frontrunners, fintech and retail sector funding plummeted about 57% and 41% compared to last year, respectively. The sectors are, according to the report, not insulated from the overall slowdown in the funding ecosystem.
Fintech, particularly, was hit due to RBI’s policy to prohibit non-bank financial institutions (NBFIs) from loading their prepaid instruments using credit lines, thus affecting the business models of some fintech startups including Slice, operated by GaragePreneurs Pvt. Ltd, and Uni, notwithstanding the meltdown in the cryptocurrency market.
“Rising interest rates and fears of global recession have led to investors becoming more risk-averse, continually slowing down the funding momentum in the Indian startup ecosystem. The funding winter, which began in Q4 of 2021, will persist in 2023 as well,” said Neha Singh, the intelligence platform’s co-founder, on the launch of the report.
One of the worst-hit in 2022, as per the report, was edtech, which witnessed a 39% decline in funding versus 2021. With schools and colleges reopening after the pandemic, the sector saw a slew of layoffs, as players were forced to cut operational costs, Tracxn said. About 70% of the funding raised in 2022 comprised of five $100+ million rounds raised by Byju's, Upgrad, Lead School and PhysicsWallah.
“In order to survive the drought, startups are taking unit economics more seriously, which has been illustrated through the series of mass layoffs that have occurred this year. Although we are currently experiencing a slump, the situation is prompting startups to establish clearer and more sustainable paths to growth, as investors’ evaluation metrics begin to emphasize good profitability over growth at all costs,” Singh added.
The report also highlighted the slowdown in unicorn activity as only 22 startups made it to the club in 2022, against 46 in the last year. Overall, 11 startups took to the public listing route for exits, with LetsVenture, AngelList and Y Combinator being the most active investors during the year.