Startup funding in India declined to $4 billion in November, down 42% on a year-on-year (y-o-y) basis, largely impacted by a slowdown in funds flow into late-stage companies, a report jointly published by Indian venture and alternate capital association (IVCA) and EY showed. However, an a month-on-month (m-o-m) basis, the capital infusion was about 18% higher than October.
That comes after a report from Elevation Capital showed that venture capital funding dropped 73% in Q3CY22 when compared to Q4CY21 – the sharpest decline global peers like the United States and China, which saw a fall of about 61% and 52%, respectively during the same period.
In India, total VC investment reached an all-time high of $40.8 billion in 2021 which dropped to $23.9 billion so far in 2022, thanks to soaring inflation which forced central banks to hike interest rates globally.
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“We expect a relatively cautious approach from investors in 2023 as they wait for macroeconomic uncertainty to subside and company valuations to adjust to lower growth expectations…India is not insulated from the dramatic shifts in the global economic landscape and the slowdown has impacted India as well,” Ravi Adusumalli, co-managing partner, Elevation Capital, said.
“However, we believe that the fundamentals of the Indian economy are very strong. Low leverage and favourable demographics in India create a long runway for growth. Indian startups will continue to remain an attractive asset class for investors globally,” Adusumalli added.
That also reflected in the number of institutional funds investing in India, which has steadily climbed over the past years. The number stood at 240 in 2011 and increased to 1,100 in 2016 which later more than doubled to reach 2,780 in 2021.
“Though we are maybe amidst a ‘funding winter’ right now, a look back at the last decade explains how far we have come, and we believe the future for India tech will be even more exciting,” Elevation Capital said in its report titled India Pulse 2022.
Echoing that view, Vivek Soni, partner and national leader private equity services, EY India said, “After being on a downtrend for many months, the Indian PE/VC investment activity seems to be turning over the tide in the past couple of months.”
“As we head into 2023, this valuation gap has reduced and at the same time, some of the global uncertainty has played out well for India which continues to attract record levels of foreign direct investment (FDI).”
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Elevation’s report found that over the past 10 years, $120 billion was invested in India and 50% of that amount came into India just in the last two and a half years. India’s market share in global funding has increased to 7% in 2021 from 3% in 2011. Meanwhile, that of the United States declined to 51% in 2021, down from 67% in 2011. During the same period, China’s market share in global funding also fell declined to 10% in 2021 from 13% in 2011. Further, last year for the first time, India outpaced China in the absolute number of unicorns created per year. At the current rate, India is on a path to outpace China by 2024/2025 in global unicorn share. India has around 108 unicorns, 47 of those were minted in 2021 alone. The total number of unicorns compares with 886 in the US and 227 in China, Elevation concluded.