Funding in Indian startups plunges 75% in Q1 2023

NEW DELHI: Indian startups raised a total of $2.8 billion in funds in the first quarter of 2023, a massive 75 per cent lower compared to the same period in the previous year ($11.9 billion), as rising inflation and interest rates continue to impact investments significantly amid a deepening funding winter, a report showed on Monday.

There were no new unicorns created in the January-March period, compared with 14 unicorns in Q1 2022, according to the report by Tracxn, a leading global market intelligence platform.

The funding volumes contracted due to the reduction in late-stage funding, which declined by 79 per cent in the first quarter ($1.8 billion) compared to Q1 2022.

Early-stage rounds saw funding of $844 million, a drop of 4 per cent compared to Q4 2022 but a drop of 68 per cent compared to Q1 of 2022.

Moreover, seed funding rounds in Q1 2023 saw funding of $153 million, a 16 per cent drop from Q4 2022. Although funding has decreased YoY, the MoM comparison is more promising as Indian startups saw a significant uptick of 54 per cent from $777 million in February 2023 to $1.2 billion in March 2023.

Late-stage rounds in Q1 of 2023 saw funding of $1.8 billion, a decline of 79 per cent compared to Q1 of 2022 and a 23 per cent drop compared to Q4 last year.

Total funding declined by 21 per cent in Q1 2023 as compared to Q4 2022, the report mentioned.

Although funding has decreased YoY, the month-on-month funding in the Indian startup ecosystem was a significant uptick of 54 per cent from $777 million in February to $1.2 billion in March.

The quarter witnessed nine, more than $100 million funding rounds with companies like PhonePe, Lenskart, Mintify, Insurance Dekho, FreshtoHome foods, TI Clean Mobility and KreditBee sourcing big-ticket deals.

PhonePe raised a total of $650 million in multiple Series D rounds in Q1 of 2023, valuing the company at $12 billion.

Lenskart raised $500 million in Series J round led by a wholly-owned subsidiary of Abu Dhabi Investment Authority (ADIA) at a valuation of $4.5 billion, the Tracxn report mentioned.

The leading sectors in terms of funding this quarter were fintech, retail and enterprise applications.

The fintech segment witnessed a funding growth of 150 per cent compared to Q4 of 2022; however, this is a drop of 51 per cent compared to Q1 2022.

In terms of exits, the scenario has remained stable for acquisitions QoQ as 46 acquisitions took place compared to the 43 in Q4 2022, the report said.