Growth & late-stage deals crash to record lows in Q3

In Q3CY22, there was only $2.13 billion worth of growth and late deals reported, compared to a high of $10.33 billion worth of deals in Q1CY22.

Growth- and late-stage funding deals accounted for 79% of the funding activity in Q3CY22 (value terms).
Growth- and late-stage funding deals accounted for 79% of the funding activity in Q3CY22 (value terms).

Growth and late-stage deals in medium- to large-sized startups, which typically give birth to new unicorns, have crashed drastically in Q3CY22, signalling a tougher winter ahead.

According to PwC’s Startup Deals Tracker report, growth and late-stage deals volumes declined by a record 75% and 72%, respectively, in Q3CY22 compared to the first quarter of the calendar year (Q1CY22).

Only two startups in India attained the unicorn status in Q3CY22, mirroring a global trend in decline in the number of new unicorns this last quarter. Globally, Q3CY22 produced 20 unicorns and 45% of them are from the SaaS segment. No new decacorns (start-ups valued at over $10 billion) were added in this quarter.

In Q3CY22, there was only $2.13 billion worth of growth and late deals reported, compared to a high of $10.33 billion worth of deals in Q1CY22. The number of (growth & late stage) were also down to just around 62 in Q3CY22 compared to around 150 deals reported in Q1CY22.

Also read: Redmi A1 Plus entry-level smartphone with clean Android 12 software launched in India: Check price, full specs

Growth- and late-stage funding deals accounted for 79% of the funding activity in Q3CY22 (value terms). These also represented 30% of the total deal activity (count terms). Average ticket size in growth-stage deals continued to decline and stood at $32 million during Q3CY22.

On the other hand, early-stage investors remained active throughout the year, even as the late and growth stages crashed. Early-stage deal volume declined to around $562 million in Q3CY22, compared to $876 million worth of deals reported in the first quarter. There were 143 early-stage deals reported in the Indian startup ecosystem in Q3CY22 compared to 197 deals in the first quarter of the year.

Early-stage deals accounted for 70% of the total funding in Q3 compared to a 60% share in Q2CY22 (in volume terms). The average ticket size ranged from $4-5 million per deal. In value terms, early-stage deals contributed around 21% of the total funding in Q3 compared to around 12% in Q2CY22.

Also read: Signal to end SMS support from its Android app, here’s what it means for users

“It is tough to predict how long the slowdown in funding will last but clearly, both founders and investors are being more selective and cautious in deal-making. In general, early-stage start-ups will be able to raise capital more easily as they are typically more insulated than late-stage deals from fluctuations in the public markets. However, investors have already raised a lot of capital which needs to be deployed and this will ultimately find its way to the Indian start-up ecosystem,” said Amit Nawka, partner – Deals & India Startups Leader, PwC India, in the report.

Around 38 M&A deals involving startups were executed in Q3 which includes 30 domestic, five inbound and three outbound deals. SaaS and edtech witnessed the highest number of M&A transactions during Q3 — nine in SaaS and seven in edtech. Edtech company upGrad is the top acquirer this quarter with four acquisitions — Wolves India, Harappa Education, Exampur and Centum Learning.

Overall in Q3, the Indian startup ecosystem reported a total deal volume of around $2.7 billion, which declined from around $6.6 billion in Q2 and $11.4 billion in Q3CY21. Barring edtech and e-commerce B2B, funding activity declined across all sectors during Q3. The average deal ticket size across all stages declined collectively from $23 million in Q2CY22 to $13 million in Q3CY22.

The top five sectors contributed approximately 67% of funding activity which included fintech, logistics and auto tech, SaaS, media and entertainment, and edtech. Some of the key deals across these sectors during Q3 were by startups including OneCard, EarlySalary, Fi.Money, Jai Kisan, Yulu Bikes, Shiprocket, XpressBees, CleverTap, Skyroot, PriceLabs, KuKuFM, UpGrad and Sunstone.

Pranav Pai, founding partner and CIO at 3one4 Capita, pointed out in the report that India is now the third-largest startup ecosystem globally, especially with the addition of more than 40 unicorns in 2021.

“It was, of course, a year that saw record allocations to tech and PE globally, which meant that privately held tech startups enjoyed an extraordinary year of available capital chasing the best growth stories…As a result of the pie growing demonstrably, the market leaders in every segment were also valued more appropriately at unicorn levels. With over $17.4 billion returned by tech exits and $7.3 billion raised by tech IPOs this year, global allocators are now encouraged to assign more capital to be reinvested in the next cycle of tech being built out from India,” said Pai.

Pai expects more capital to be available only from January 2023. “It is almost certain that selectivity in dealmaking will increase, and startups will have to prove a path to sustainable growth. IPOs will also resume in 2023, and pricing is expected to be far more moderate as well. The demand for Indian market leaders and category creators will continue over the medium and long term as markets recover from these corrections next year,” he added.

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.

First published on: 14-10-2022 at 15:16 IST
Exit mobile version