Fintech and consumer companies drive funding activity
- ByStartupStory | December 29, 2022
The worldwide funding slowdown in 2022 also had an impact on Indian startups, with valuations falling and investors focusing on profitability and financially sustainable business models.
According to startup intelligence platform Tracxn, consumer, enterprise applications, and fintechs will be the most well-funded industries in 2022. However, funds raised by entrepreneurs in these industries fell in accordance with the general downturn in private markets, with capital raised by Indian startups falling 39% to $25.4 billion in 2022 from $41.8 billion the previous year.
The top categories have shifted slightly since 2021, with corporate applications startups edging out retail for second place. Consumer companies, including marketplaces, business-to-consumer, and e-commerce, raised $20.4 billion across 746 transactions in 2022, less than half of the $21.9 billion raised across 1,099 transactions in 2021. In 2022, the enterprise applications sector raised $7.2 billion over 644 deals, including firms in enterprise software, software-as-a-service (SaaS), and HR tech platforms. Last year, it was $10 billion across 886 transactions.
Fintechs raised $5.7 billion in 348 transactions in 2022, compared to $10.3 billion in 548 transactions in 2021. The retail industry, which received $12.9 billion in funding across 614 projects in 2021, fell out of the top three, receiving less than half of the $5.7 billion in funding across 384 deals.
They will still be the prevailing topics for venture capitalists in 2023. SaaS, cleantech, fintech, and consumer tech have been significant verticals over the past 12 months for early-stage VC firm Blume Ventures, one of the top-10 active VCs in India. Ashish Fafadia, a partner at Blume Ventures “These will continue to be areas of focus all through the next year as well.”
Similar opinions were expressed by InnoVen Capital managing partner Ashish Sharma. “We expect enterprise-SaaS, fintech and consumer internet to see the most investor interest,” said he. “The pace will be more calibrated. There is plenty of capital, but it is going to be more cautious, especially for later stages” remarked Ganesh Rengaswamy, managing partner and co-founder of Quona Capital.
Fafadia said, “The environment will be a bit tough for firms where business models have not been set, but that is where the selection parameters and filtering come into the picture, and we are committed to continue with the same approach.”
Investor interest will continue to be generated by startups focused on digital transformation and enhancement, such as artificial intelligence, the Internet of Things, cloud computing, and immersive consumer experiences. “Startups in the hi-tech arena are predicted to emerge, harnessing the application of augmented reality and virtual reality to improve quality and add a fresh dimension for consumers,”Co-founder of early-stage investment platform We Founder Circle Gaurav VK Singhvi remarked.
In addition to this, as investors become more optimistic about agritech and climate tech, among other things, the focus on sustainability will grow. The focus on unit economics, profitability, and creating a sustainable firm was much greater in 2022. Startups sought to increase their runways and decrease their pace of cash burn.
The foregoing demands, which were made all the more difficult by legislative changes, mostly affected edtech, fintech, and cryptocurrency. From $4.1 billion in 2021 to $2.4 billion in 2022, India’s funding for edtech decreased. According to Sharma of InnoVen, financing for edtech, Web3.0, and social will also likely remain weak over the coming year.
“Sectors which are trying to overtly be reliant on customer acquisition, with very high customer acquisition costs, will definitely be having headwinds,” Fafadia said. “Businesses which have a long-term positive trend in average revenue per user and market size is established will be the flavour of the season.” Despite the market slump, the majority of investors are optimistic about India.
Shashank Randev, co-founder, 100X.VC said “On a global scale, India is better positioned to weather this winter, as most top-tier funds have raised record sums this year, indicating that we may be in for intense investment cycles in the future.” “Furthermore, recent global developments have increased the relative attractiveness of India as an investment destination for many investors,” he added.
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