India's start-up ecosystem continues to face a prolonged funding winter coupled with global macroeconomic headwinds, and depreciation of the local currency. Funding amongst the domestic start-ups declined by 36% to $3.8 billion across 298 deals in the first half of 2023 as against $5.9 billion in H2 of CY22, as per the latest report by PwC India. This is the lowest funds raised by domestic start-ups in the last four years.
Of this, the early-stage deals accounted for 57% of the total funding in H1 of CY23 in volume terms. In terms of value, early-stage funding contributed to approximately 16% of the total funding in H1 CY23 but was at its lowest in H1 CY23 as compared to the previous two years. Growth- and late-stage funding deals accounted for 84% of the funding activity in H1 CY23 in value terms. Growth and late-stage funding rounds represented 43% of the total count of deals in this period. The average ticket size in growth-stage deals was $19 million and late-stage deals were $52 million during H1 CY23.
During the period under review, 80 mergers and acquisitions (M&A) deals involving start-ups were executed. Of these, 80% were domestic transactions and the rest were cross-border transactions. SaaS startups witnessed 23 deals, followed by fintech startups at 11 deals in H1 of CY23. E-commerce and D2C startups accounted for 10 merger and acquisition deals during the period under review.
In terms of sectors, SaaS (software-as-a-service), D2C (direct-to-consumers), finTech, e-commerce B2B (business-to-business) and logistics and AutoTech startups contributed approximately 89% of the total funding received in H1 CY23 in value terms. Of this, SaaS startups contributed 30% of the total funding activity in H1 of CY23. The average ticket size of the deal ranged from approximately $10 to $11 million during H1 CY23.
Meanwhile, in H1 of CY23, the D2C and online gaming startups witnessed an increase in investments by almost 3x as against that of H2 CY22, according to the report. In the foodtech sector, investments increased by four times in H1 CY23 compared to H2 CY22 in value terms, says the report. The average ticket size of the deals amongst foodtech startups increased from $1 million in H2 CY22 to $9 million in H1 CY23.
"There is a slowdown in startup funding despite significant untapped capital reserves held by venture capitalists (VCs). Active VC firms in India have secured new funds in the past year and we can expect the pace of investments to pick up in the next few months," says Amit Nawka, Partner-Deals & Indian Startups leader, PwC India.
"In the interim, there has been an increase in the due diligence being carried out by investors before making investments, both in terms of detailing as well as coverage - from typical finance and legal to areas like technology, HR and business processes - to ensure that the startups have a robust corporate governance framework," he adds.