World over, the prevailing economic downturn has been harmful across industries and verticals. But Indian startups, though not immune to the recession marked by budget crunch, layoffs, and apparent lack of deal-sealing, have demonstrated relative resilience.
Fundraising in Indian startups jumped a bit in November 2022, leading to capital inflows of $1.27 billion. This has been the highest since June. The investment was early, and the growth stage rounds according to available data.
Late-stage funding remains badly hit this year. Experts point out that most deals in November should have closed months ago.
Has The Storm Passed?
Tech investors have stated that this slight increase in deal activity does not point to a sustained recovery. After June, when Indian startups raised $2.36 billion, there was a steep fall in funding activity. Experts articulate that a slight perking up in October-November does not imply that the storm has passed.
Companies mopped up $877 million in July, $981 million in August, and $787 million in September. There has been a moderate and gradual revival in October (crossing $ 1 billion) and November. But this does not mean celebration time.
The year 2023 remains an enigma for Indian startups, just as it does for investors.
Valuations Recame ‘Realistic’
Venture capital (VC) investors also pointed out that founders seeking funds in 2022 were awaiting better valuations and eventually ended up signing off deals when hit by cash crunches. Startups had to concede to a valuation reset too.
“In the first quarter of 2022, there were founders who wanted the typical $5 million for 20% seed funding. But investors had become realistic by then. One founder who was not ready to do a $3 million deal with us in February-March, came back and signed a $1 million raise in August,” said a VC investor.
However, there is now an industry buzz of a funding winter gaining ground as 2023 approaches. Globally, India is all set to brave this winter far more easily as most top-tier funds in India have raised record funds this year, an indicator that we could see intense investment cycles ahead.
India has recently emerged as the third largest startup ecosystem, closely following the economic titans—US & China. India’s tech sector currently employs 4.8 million people and is expected to gross $19.93 billion by 2025. The nation now has a robust network of angel investors, and every significant venture capital or private equity company is keen to invest in the growth of India Inc.
In a recent analysis, Indian unicorns, i.e. startups worth $1 billion or more, had a combined valuation of more than $340.79 billion. The list will appear more remarkable if you include companies poised to become unicorns soon.
Even the pandemic could not deter the country’s growth story for long. More specifically, in the last two years, new businesses from varied industries have realigned their strategy to fit into the fast-changing scenario.