Indian startups see 75% YoY drop in Q1 2023 funding, says report
- ByStartupStory | April 4, 2023
The Indian startup ecosystem continues to grapple with a funding crunch, with a sharp 75% YoY decrease in funding during Q1 2023. As per the ‘Indian Tech Startup Funding Report Q1 2023’ by Inc42, startups in India secured a total funding of $3 billion in the first quarter of this year, compared to $12 billion in the same period last year.
The report by Inc42 on Q1 2023 funding for Indian startups revealed a 58% YoY drop in the number of deals, from 506 to 213. Despite investors sitting on a sizable dry powder of over $18 billion, ongoing macroeconomic uncertainties, the Russia-Ukraine war, the falling rupee, and the Silicon Valley Bank collapse have made them apprehensive. The dwindling revenues of Indian startups, mounting losses, and the struggle of founders to devise scaling strategies have further hurt investment sentiment.
According to the ‘Indian Tech Startup Funding Report Q1 2023’ by Inc42, funding trends for Indian startups have returned to pre-pandemic levels after the 2021 bull run. However, the report also notes a significant decline in mega deals, with only seven recorded in Q1 2023 compared to 30 in the same period last year. Late-stage funding also suffered a 77% YoY drop, with only $1.8 billion raised by startups in Q1 2023 versus $7.8 billion in Q1 2022. Series C rounds saw the most significant correction, with a 75% decline in the number of deals from 30 to 5. The top three mega deals in Q1 2023 were PhonePe’s $650 million funding round, Lenskart’s $500 million fundraising, and InsuranceDekho’s $150 million raise.
The ‘Indian Tech Startup Funding Report Q1 2023’ by Inc42 reveals that the growth stage funding amount suffered a 76% decline in Q1 2023, with startups raising only $700 million compared to $2.9 billion in Q1 2022. Both Series A and B funding rounds saw significant drops in the number of deals, with Series A deals dropping 48% YoY to 30 and Series B deals tanking 86% YoY to 4. Seed funding also experienced a decline of 81% YoY to $180 million in Q1 2023 from $961 million in Q1 2022, despite 2022 being the year with the highest seed funding in the last eight years, with almost 41% ($2 billion) of the total seed funding ($5 billion) raised by Indian startups secured in that year.
Founders are cautious about potential down rounds or lower valuations after raising large funding rounds during the peak of 2021. Those who did not raise funds during the period between Q1 2021 and Q1 2022 are now feeling the impact of the current market sentiments. Consequently, founders are focused on minimizing cash burn and waiting for market revival before raising funds at a good valuation. As a result, entrepreneurs are increasingly turning to debt funding instruments to support their working capital requirements, especially at the late stage.
According to industry experts, startups with robust fundamentals are likely to regain investor confidence, given that funding levels have now reverted to the levels witnessed in 2019 and 2020.
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