Author- Rohit Chintapali, BW Businessworld
Funding for tech startups in India has seen a significant decline, with Q3 funding totaling USD 1.2 billion. This represents a 20 per cent decrease compared to the previous quarter and a massive 50 per cent drop from the same period last year.
A nasscom-Zinnov report for Q3 CY2023 noted a significant decrease in the number of deals made during Q3 CY2023. There was a 10 per cent decline compared to the previous quarter and a striking 40 per cent reduction when compared to the same period in 2022.
Early-stage Funding Hit
Early-stage funding, in particular, was hit hard, with an average drop of over 45 per cent year-on-year (YoY).
Meanwhile, late-stage funding also faced challenges, managing to secure only approximately 20 per cent of the total funding that was raised in CY2022 during the first nine months of CY2023. This development reflects difficulties faced by tech startups in securing capital, especially at later stages of development.
DeepTech funding in the first nine months of 2023 has seen a sharp decline, dropping by 66 per cent compared to the funding levels observed during the same period in 2022. Notedly, AI-led startups in the BFSI (Banking, Financial Services, and Insurance) and EnterpriseTech sectors have collectively raised over 60 per cent of the total funding in DeepTech.
Also, after three consecutive muted quarters, the fitness and wellness sector has gained traction in terms of funding.
In addition to funding challenges, the Indian tech startup ecosystem has also witnessed a significant drop in merger and acquisition (M&A) activity. M&A deals in the first nine months of 2023 were down by 48 per cent compared to the same period in 2022, which indicates a slowdown in consolidation and partnership activities within the sector.
Investment Round Size
The report also noted a decline in the sizes of investment rounds, with a decrease of over 25 per cent in ticket sizes for startups across all stages during Q3 2023, which suggests that startups received smaller investments during this quarter. This may have implications on their growth and expansion.
A Unicorn In Q3
The first unicorn of 2023, Zepto, emerged after a drought of three consecutive quarters without any new unicorns. A “unicorn” is a term used to describe startups with a valuation of at least USD 1 billion.
FinTech and Profitability
Fintech startups see to be looking at a promising future, driven by global opportunities and improved profitability. In FY2023, these companies have seen significant growth, mentioned the report, with some experiencing up to threefold (3X) increases in their profits.