Startup funding in India during Q3 of 2022 hit a two-year low at USD 2.7 billion with a total of 205 deals, according to a PwC India report. During Q2, the total funding in the startup space was USD 6.6 billion.
The funding winter continues in India’s start-up ecosystem as well as globally, and it’s uncertain when this will end. The average deal ticket size declined from USD 23 million in Q2 2022 to USD 13 million in Q3. “Although it has been argued that there is substantial committed capital waiting to be deployed (dry powder) in the Indian start-up ecosystem, it is becoming clearer that selectivity in dealmaking will increase, with a focus on path-to-profitability, especially in growth- to late-stage companies,” it said.
The report by PwC India summarised its discussions with several leading investors in the Indian start-up ecosystem on the current funding environment and outlook. “While decline in funding is noted across all stages of investment – early, growth and late – we note that the decline has been the least in early-stage deals, where the average ticket size is between USD 4-5 million. This indicates that venture capital (VC) firms continue to back the Indian start-up ecosystem,” the report said.
“Funding in growth- and late-stage deals continued to decline, with an average ticket size of USD 13 million in Q3 CY22.” But, the FinTech and SaaS sectors continued to attract the most capital during Q3, in line with previous quarter trends. The FinTech sector contributed to 30 per cent of the total funding during the quarter.
Further, talking about city-wise trends, the report said Bengaluru, Mumbai and Delhi NCR continue to be the key startup cities in India, representing around 81 per cent of the total venture capital/private equity funding activity. Surprisingly, only two startups attained unicorn status in Q3 – Shiprocket and OneCard. Unicorns are those firms valued at least USD 1 billion.
In Q1 and Q2, a total of 14 and 4 unicorns were born, respectively, the report stated. Globally, Q3 produced only 20 new unicorns, mirroring a global slowdown in venture funding – 45 per cent of these are from the SaaS (Software as a Service) space, the report said.
“Unstable macro conditions and tightening of venture funding resulted in the emergence of only 20 unicorns globally in Q3 CY22, a significant decline as compared to previous quarters,” it said, adding that 55 per cent of the new unicorns during the quarter were from the US (11), while India, South Korea and the UK each added two. Surprisingly, no new decacorns – companies with USD 10 billion as a valuation- were added this quarter.
“There was a significant drop in the valuation of some decacorns, with companies not having enough cash being forced to raise funds at a significant discount,” it said.