Startup funding in India plummeted by 33% to $6.9 billion

Venture funding for the Indian startup ecosystem plummeted by a staggering 33% to $6.9 billion in the April-June quarter (Q2) from $10.3 billion in the first quarter (Q1) of this calendar year, according to a report from Tracxn Technologies.

According to the data intelligence platform's report, 121 new firms completed their first funding rounds in Q2, four startups became unicorns, 62 startups were acquired, and five startups filed for an initial public offering (IPO).

“Though investors are a little wary due to the current environment, it hasn't dampened the investment spirit of the community. They have become more decisive about the startups they want to nurture and are focusing extensively on a long-term perspective,” said Abhishek Goyal, cofounder, Tracxn.

VerSe Innovation--which runs Dailyhunt, Delhivery, Udaan, ShareChat, and upGrad were the top five players in Q2 in terms of fundraising as Indian startups raised an overall $6.9 billion across 409 funding rounds. Bengaluru, Delhi, and Mumbai were the top cities drawing the most investment, the report stated. Delhivery raised new capital through its public issue in May while Udaan's fund-raise is through convertible notes.

The total valuation of unicorns increased to $31.8 billion in Q2 due to the emergence of new unicorns such as Leadsquared, Purplle, PhysicsWallah, and Open. Among exits, the top three acquisitions in Q2 were Blinkit (by Zomato), Whiteteak (by Asian Paints), and MyHQ (by Anarock). The five startups that filed for IPOs were eMudhra, Delhivery, Handicrafts village, Eighty Jewellers, and Veranda Learning Solutions.

The flood of venture capital directed at Indian startups in recent years is drying up even as a stream of global investors, including the likes of Sequoia Capital, caution entrepreneurs about turbulent financial markets. Big-ticket funding rounds have suffered a huge blow in the past two months signalling a reluctance among investors to write large cheques.

“Late-stage financing is where we have seen a bit of pause, and most of the aggregate dollar value for the ecosystem comes from late-stage deals. And if the late-stage funds slow down, it looks like the ecosystem is slowing down,” Rahul Taneja, partner at Lightspeed Venture Partners, who is of the view that the early-stage (funding) ecosystem hasn't changed that much, had said.

The global macroeconomic conditions triggered by all-time high inflation, fears of recession, and hikes in interest rates by the central banks, particularly the US Federal Reserve, were further exacerbated by the ongoing Russia-Ukraine war. This has affected markets worldwide as publicly-traded technology stocks continue to take a beating, thus dampening the overall investor sentiment.

Data from other research firms, too, corroborate with falling numbers. Data from Venture Intelligence reveals that venture capital (VC) funding in Indian startups dipped 37% in Q2 of this calendar year to $6.9 billion compared with $11 billion in Q1. Additionally, for the first half of the year, the overall investments stood at $17.9 billion, a 36% increase from the same period last year.

“There are so many external factors that are driving this (funding) freeze it is reasonable to expect this is going to last for another 12 months,” Sanjay Swami, managing partner at Prime Venture Partners said.