Startup funding in the Indian ecosystem continued to decline in the second quarter of CY2022 due to a major ‘funding winter’ amid a decline in investor confidence.
Indian startups raised $6.9 billion in Q2 2022 (April-June) across 409 funding rounds, a decline of 33%, compared with $10.3 billion in Q1 2022 (January-March). In the same quarter last year (Q2 2021), Indian startups raised around $10.1 billion, according to Tracxn’s ‘Geo Quarterly Report: India Tech Q2 2022’.
The third quarter of 2021 topped the charts in terms of funding activity with $15 billion in fundraising volume, which hasn’t been surpassed in recent times. The ongoing funding winter is a result of the market slowdown and economic volatility based on the current macroeconomic conditions and geopolitical situation that’s intensifying inflation, interest rates and commodity prices.
“Though investors are a little wary due to the current environment it hasn’t dampened the investment spirit of the community. They have become more decisive about the startups they want to nurture and are focusing extensively from a long-term gain perspective,” said Abhishek Goyal, co-founder of Tracxn.
The funding winter was felt across all stages of investments including seed, early and late-stage rounds. Late-stage deal volume stood at $4.6 billion in Q2 2021 — a 41% decline compared with the previous quarter. Early-stage deal volume declined by 9.5% quarter-on-quarter (q-o-q), while early-stage deals were also down by 16% q-o-q, according to Tracxn.
The number of startups funded in Q2 2022 also declined sharply by 29% q-o-q with only 404 firms raising institutional funding. In the previous quarter, around 574 startups received funding from venture capitals (VCs) and private equities (PEs). The early-stage deal count also fell 19% q-o-q, while the growth stage deal count was down by 25% q-o-q in Q2 2022. The number of seed-stage rounds declined the most in comparison to early and late-stage rounds. There were only 231 early-stage deals reported in Q2 2022, which is a 34% q-o-q drop, making it the steepest decline in comparison to the last 5 quarters, according to Tracxn’s data.
However, some of the top startups funded in Q2 2022 include Dailyhunt’s $805 million Series J round, Delhivery’s $304 million Series J round, and Udaan’s $275 million Series D round. They were followed closely by ShareChat ($255M- Series G) and upGrad ($225M- Series F). Social Platforms, internet first media, payments, B2B e-commerce and e-commerce enablers are the top sectors receiving the most funding from investors between April and June 2022.
Around 121 new startups closed their first funding rounds in Q2 2022, along with 4 startups turning unicorns. However, around 62 startups got acquired, and 5 filed their initial public offerings (IPO) in the same quarter. With Leadsquared, Purplle, PhysicsWallah and Open becoming new unicorns, the total valuation of unicorns escalated to $31.8 billion in the past quarter (Q2 2022). G.O.A.T Brand Labs, Fashinza, and Itilite entered the soonicorn club with fundraises of $88 million, $135 million and $47.2 million respectively.
With respect to exits, while eMudhra, Delhivery, Handicrafts village, Eighty Jewellers and Veranda Learning Solutions filed for IPOs, Blinkit (by Zomato), Whiteteak (by Asian Paints) and MyHQ (by ANAROCK) were the top acquisitions.
Bengaluru, Delhi, and Mumbai are the top cities attracting the maximum investments, as per the report. While IPV and Blume Ventures topped the investment charts in seed-stage startups, Sequoia Capital and Accel ranked highest in the early-stage startups funding standing. Sofina and DST Global are the leading late-stage institutional investors.