Investment India: Bad funding weather in Q3 expected to continue for next 12-18 months

The Tech Panda takes a look at the bad funding Venture Capital (VC) weather in Q3.

The world is heading towards a recession according to recent reports in the media. According to Reuters, US companies from tech giants Alphabet and Microsoft to GE and toymaker Mattel reported big slowdowns in growth or warned of tougher times ahead, fuelling recession fears and pulling down stocks.

According to SaaS-based market intelligence platform, Tracxn’s Q3’22 India Quarterly Startup Report, funding has dropped by 80% compared to Q3’21 ($14.9 billion). Q3 2022 clocked US$3 billion in funding, which is 57% lower than Q2 2022.

Neha Singh, Co-founder, Tracxn said, “Our quarterly startup report confirms that India is currently experiencing a funding slowdown which is expected to continue for the next 12-18 months, and the effects of the funding slowdown are expected to intensify going forward. Executives across the world anticipate a recession in the near future and are making preparations to cut costs. To add to their woes, the recent energy crisis in the UK and Europe and also the sliding GBP and EUR have increased the likelihood of a global recession.”

India is currently experiencing a funding slowdown which is expected to continue for the next 12-18 months, and the effects of the funding slowdown are expected to intensify going forward

The late-stage funding was impacted the most, with an 88% decline from Q3 2021 and a 64% drop from Q2 2022. Only three unicorns were added in Q3 2022, as opposed to 14 being added in the same period last year.

September Snapshot

India gained US$752 million in funding in the month of September down by 15% as compared to August 2022 and down by 83% as compared to the same period last year.

The funding rounds dropped by 15% to 98, as compared to August 2022, and 57% as compared to September 2021.

Bengaluru based shared micro-mobility operator Yulu Bikes raised a large round of US$83 million as a part of their Series B fundraise. Molbio Diagnostics, a PCR testing company raised US$85 million in their Series C round and became a Unicorn.

We are seeing large PE and VC funds treading cautiously led by significant changes in the investment environment in recent quarters. We expect this to continue until we see signs of stabilisation globally

Tata acquired 1Mg, an online pharmacy that also entered the Unicorn club in September. There were 17 acquisitions that took place in September 2022 with Razorpay continuing its acquisition spree by acquiring PoshVine (a loyalty management platform), its 4th acquisition in 2022 and 7th till date.

Another notable acquisition was Insight Cosmetics (Internet first cosmetic company) by Reliance Retail. Two companies, Kore Mobile and DreamFolks were the only two startups in the quarter that went public in September bringing the total to 10 tech IPOs this year, as opposed to seven in the same period last year.

“The Indian startup ecosystem is still experiencing the ongoing funding slowdown and the severe macroeconomic conditions gripping the West. We are seeing large PE and VC funds treading cautiously led by significant changes in the investment environment in recent quarters. We expect this to continue until we see signs of stabilisation globally,” said Abhishek Goyal, Co-Founder, Tracxn.

Looks like startups must prepare for a wintry future.

Drop Across All Funding Stages

According to the report, Indian startups raked in US$3 billion in Q3 2022 (July-Sept), which was 57% lower than the previous quarter. The average ticket size also saw a drop across all funding stages, with the late stage seeing the highest fall of over 70%, from US$142 million in Q3 of 2021 to US$42 million in Q3 of 2022, suggesting that investors are hesitating to make large investments until economic conditions alleviate.

Genomics Shines

The top three sectors that achieved the most funding in this quarter were alternative lending, genomics and payments. Genomics is an upcoming sector, which is showing high potential but has gone untapped by investors till now. It saw the highest investor interest in Q3 2022, raking on more than US$231 million in funding, which is more than the total funding received in the year 2021.

The US$100 million+ Club

The five companies that gained funding rounds of more than US$100 million in this quarter were EarlySalary, 5ire, InsuranceDekho, OneCard, and BookMyShow with the most active investors being Better Capital, Venture Catalysts and Surge.

Out of the 334 funding rounds closed in Q3, the top three funding rounds were completed by EarlySalary (US$110 million- Series D), CleverTap (US$105 million- Series D), and OneCard (US$102 million- Series D).

Some of the other key highlights of the report include 109 startups closed their first funding round, three startups turned unicorns, 39 startups got acquired, and two filed for their IPOs. Molbio Diagnostics, 5ire and OneCard turned unicorns and Zopper, LifeCell, Jar, DotPe, Vegrow Bigspoon, InsuranceDekho, CUSMAT, Airtribe and Serentica Global joined the Soonicorn club.

Bengaluru, Mumbai and Delhi-NCR were the top cities attracting maximum investments, as per the report with Blume Ventures topping the investment charts in seed-stage startups, Sequoia Capital ranked highest in the early-stage startup funding and GIC leading the late-stage funding.

Silver Lining

Still, the news isn’t entirely bad. Last week, Silverneedle Ventures, an India-focused venture capital firm which invests in early-stage technology-led businesses, announced the launch of a INR 100 crore fund.

These are important times for startups as well as VCs. The Tech Panda takes a look at Venture Capital (VC) companies seeking to invest in Indian startups even in this bad funding weather.