News: Startup scene in India takes a hit: Funding drops to a 5-year low in Jan 2022


Startup scene in India takes a hit: Funding drops to a 5-year low in Jan 2022

PE/VC funding to India's startup ecosystem, the third-largest globally, nosedived even further in January compared to the US and China, the two other top startup ecosystems.
Startup scene in India takes a hit: Funding drops to a 5-year low in Jan 2022

India startups are staring at an uncertain future as private equity and venture capital funding slumped to a 63-month low in January. Blame it on rising macroeconomic uncertainties, a trend that could continue for at least the first half of 2023.

According to Venture Intelligence data, Indian startups raised $630 million in January from PE/VC investors across 121 deals, the lowest by value since September 2017, the year entities raised $148.3 million across 39 deals.

A host of factors such as uncertainties caused by accelerating inflation, rising global interest rates, the spectre of recession confronting the West, and the war in Europe disrupted supply chains.

Industry observers expect the slowdown to continue, at least in the near term, as investors wait for valuations to rationalise.

Ashish Kumar, Co-Founder at Nandan Nilekani’s Fundamentum Partnership, explained the reasons to

“The first half will be tough for all (global) startups in general and not just Indian. The reason is the tentativeness of funds to invest because of global uncertainties. It is indeed a function of startups needing more time to grow to justify the valuations at which it will be prudent for startups to raise funds,” he said 

Going is tough in the year ahead

Reports suggest startups were raising $2 billion monthly on average in 2022 and $3 billion in 2021.

In January 2022, startups entered into 136 deals raising close to $4.1 billion, the data showed. Even in the second half of 2022, when investors started withdrawing deals because of the worsening macroeconomic environment, startups were raising close to $1 billion monthly on average, the data showed.

In January, PE/VC funding to India’s startup ecosystem, currently the third-largest in the world, also nosedived more than it did in the US and China, the world’s two biggest startup ecosystems.

According to experts, the repercussion of economic headwinds will be strong globally and recovery will happen together in terms of funding in startups.

Rampant job cuts

The Indian startup ecosystem is already struggling to survive the funding winter. At least 15 startups, including the most-funded unicorns, let go of close to 2,700 employees in January alone, taking the total tally of layoffs to more than 20,000 since the start of 2022.

The most bullish investors have gone slow in investing. Data shows Tiger Global, and Sequoia Capital, two of the country’s most aggressive startup investors, who have backed 38 and 31 of India’s 107 unicorns, did not participate in a single funding round in January.

Interestingly, Sequoia Capital India raised a $2.85 billion fund last year, while Tiger Global is raising a $6 billion fund, of which India is expected to be among the biggest beneficiaries.

Not just Sequoia and Tiger, other aggressive VC investors including Accel, Elevation Partners, and Matrix Partners, among others, have also raised large India-dedicated funds.


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Topics: Startups, Funding & Investment

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