Venture capital (VC) funding activity in the Indian startup ecosystem has experienced setbacks during the first half (H1) of the calendar year 2023, but the impact was very prominent in terms of value. A total of 568 VC funding deals worth $3.7 billion were announced in India in H1 2023, down 43.3% year-on-year (YoY) in terms of deals volume, according to a latest report by GlobalData, a leading data and analytics company. However, in terms of value, VC funding was down 76.4% as compared to the same period last year.
As per the report, the steep decline in funding value could be an indication of prolonged funding winter and severity of investor cautiousness due to the challenging economic scenario globally.
“Owing to the challenging economic scenario, investor sentiment had a dent globally. As a result, several key global markets, including India, have experienced subdued VC funding activity. The steep decline in funding value could also be a signal of prolonged funding winter and severity of investor cautiousness,” says Aurojyoti Bose, Lead Analyst at GlobalData.
In fact, the total funding value in India during H1 2023 was down by more than four times compared to the total funding value for H1 2022. An analysis of GlobalData’s Financial Deals Database revealed that Indian startups raised $15.8 billion across 1,002 VC funding deals in H1 2022, the report notes.
“Apart from macroeconomic challenges and recession fears, concerns around startup valuations also seem to take a toll on investor sentiments in the country. In fact, the impact in India, which happens to be among the top five markets globally in terms of both VC funding deal volume and value, also seems to be relatively more prominent compared to the U.S., China, and the U.K.,” adds Bose.
The report highlights that VC funding deal volume for the United States, China and the United Kingdom also declined by 34.7%, 15.8%, and 28.6% in H1 2023, respectively, compared to the same period in the previous year. The decline in corresponding value for these markets was even relatively lesser, standing at 49.2%, 36.3%, and 54.7%, respectively.
PwC India, in a recent report, also highlighted the prolonged funding winter being faced by early-stage companies. As per the report, the funding amongst domestic startups declined by 36% to $3.8 billion across 298 deals in H1 of CY23 as against $5.9 billion in H2 of CY22. This is the lowest funds raised by domestic startups in the last four years.
“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.
Meanwhile, Union Minister of State for Skill Development & Entrepreneurship and Electronics & IT Rajeev Chandrasekhar has expressed optimism about the future of the startup ecosystem in India and said that the next 4-5 years will witness substantial growth for startups and unicorns and the number of such enterprises in the country will increase by 10 times.
“In 2014, our nation’s tech landscape was limited to IT and ITes. However, since then, opportunities have emerged across various domains such as deep tech, AI, data economy, semiconductor design, microelectronics, and high-performance computing,” says Chandrasekhar.
“What was once just one-third of the overall tech space has now expanded, presenting immense potential for unicorns and startups. From 108 unicorns I am sure we will reach 10,000 in the next 4-5 years. Today we have over 1 lakh startups in India and it will increase by 10 times,” the minister says.