The capital flow into Indian startups declined for the fourth straight month in August to $1.27 billion, data sourced from Tracxn showed, as investors continued to stay cautious and cherry-picked companies which displayed strong prospects.
While the slowdown was highlighted in the growth or late-stage companies, of late, even early- and seed-stage firms which were thought to have surpassed the funding winter, have seen their deal volumes decline. Early-stage companies received about $388 million in funding, while seed-stage startups bagged just $81 million in August. This was lower than the $408 million and the $161 million they got in July, respectively, the data showed.
“Earlier, every Tom, Dick and Harry would get funded, but over the past months we investors have been exercising caution because of which you’ll see deal volumes decline. Investors are done losing money. We’ve been now asking for more details on the unit economics, revenue growth trajectory, business plans, profitability and scalability, which wasn’t the case earlier… Now, this cautiousness is going to stay for longer, the quality of startups being picked will become better and more real valuations will prove to be good entry points — so I quite like this setting,” Brijesh Damodaran, managing partner, Auxano Capital, said.
August saw only upGrad, an edtech platform, and EarlySalary, a company that provides loans to salaried employees, mop up big-ticket fundraises – $210 million and $110 million, respectively. Realty firm Elan was next with a $53.2-million fundraise. That compares with at least seven funding rounds where new-age companies raised above $100 million each with firms such as OneCard and 5ire both becoming unicorns.
The number of funding rounds also reduced marginally month-on-month to 136 from July’s 159. Since the beginning of this year, there were over 200 funding rounds every month till the end of May, after which they’ve been on a steady decline. VCs said funding will remain muted for the remainder of this year.
Investors also pointed out that deals were being renegotiated and pushed out by months to arrive at true valuations of companies. They’re also asking for increased scrutiny and corporate governance. “We’re going about our work more patiently than before. This is the period where haircuts, M&As, bridge rounds are all being discussed. Going forward, for the rest of this year, we’ll see a plateauing (of fund flows) and then the beginning of next year we should see a rise, after expectations of higher interest rates, among other factors, are fully baked in and the stock markets behaves accordingly,” Anup Jain, managing partner at Orios Ventures, said.
In April, the month just before the slowdown in funding became more prominent, late-stage, early-stage and seed-stage companies got $4.21 billion, $1.1 billion and $185 million, respectively — a total of roughly $5.5 billion of capital in a single month.