India outpaces China in no. of unicorns created in 2022

India, for the second time in a row, added more unicorns (23) than China (11), with the addition of its 100th unicorn (Open Technologies) in May 2022.

Funding momentum, however, softened in India in 2022, in line with the global slowdown as the total deal value saw a compression from $38.5 billion to $25.7 billion from 2021 to 2022, as per the latest edition of Bain & Company’s annual India Venture Capital Report 2023, written in collaboration with Indian Venture and Alternate Capital Association (IVCA).

The decline in funding mostly took place over the second half of 2022 as global macro headwinds intensified over the year. In fact, investments grew 1.4x over the first half of 2021–2022 but saw a 70% decline in the second half of 2022 compared to the second half of 2021. "Within Asia-Pacific, the share of India-focused VC investments reached 20% for the first time, and India continued to account for 5% of global VC funding in line with 2021," says the report.

Moreover, despite the drop in Indian VC funding to $25.7 billion (0.7x of 2021 funding), deal volume saw marginal 1.1x growth, reaching 1,611 deals led by an expansion in seed to series B deals. "The decline was driven primarily by average deal size compression from $25 million to $16 million over 2021–2022."

Also, the series A deals maintained an average deal size of $11 million, cementing a step shift in early-stage dealmaking in India as the average series A deals hit the coveted $10 million mark for the first time in 2021.

The report shows venture funding continuing to see democratisation, with emerging hubs beyond Bengaluru, Mumbai, and the NCR (National Capital Region) receiving 18% of the funding and accounting for 9 of 23 unicorns added in 2022.

Software-as-a-service (SaaS) and fintech continued to see momentum in 2022 relative to 2021, growing from 25% to 35% of total funding in 2022. Consumer tech, however, saw a 55% drop, from over $20 billion in 2021 to less than $10 billion in 2022.

The concentration of investments by large investors decreased to less than 20% from 25% in 2021 as investment activity by global hedge funds and crossover funds slowed down, says the report.

Despite the caution in capital deployment, 2022 saw record fund-raising and, in many cases, investors raised their largest-ever India-focused funds, says the report. Several Tier 1 investors raised new India-focused funds (for example Sequoia’s $2 billion India Fund VIII and Lightspeed India’s $500 million India/Southeast Asia-dedicated fund). Similarly, prominent domestic VCs and smaller funds saw significant fund-raising over 2022 (e.g., Fireside Ventures Fund III—$225 million; Blume Ventures Fund IV—$250 million; and Artha Select—$55 million micro VC fund).

For 2023, cautious optimism across stakeholders may be seen, says the report. "While global macro headwinds are likely to continue to affect India, shifts across the ecosystem indicate that a more resilient ecosystem will emerge…In the longer term, global investors are likely to remain positive about the India Story."

Despite the caution in capital deployment, 2022 saw record fund-raising and, in many cases, investors raised their largest-ever India-focused funds, says the report. Several Tier 1 investors raised new India-focused funds (for example Sequoia’s $2 billion India Fund VIII and Lightspeed India’s $500 million India/Southeast Asia-dedicated fund). Similarly, prominent domestic VCs and smaller funds saw significant fund-raising over 2022 (e.g., Fireside Ventures Fund III—$225 million; Blume Ventures Fund IV—$250 million; and Artha Select—$55 million micro VC fund).

For 2023, cautious optimism across stakeholders may be seen, says the report. "While global macro headwinds are likely to continue to affect India, shifts across the ecosystem indicate that a more resilient ecosystem will emerge…In the longer term, global investors are likely to remain positive about the India Story."