Worries of a rapid global economic slowdown have cast a shadow on the Indian startup ecosystem. Private equity and venture capital funding in the country fell for a third consecutive quarter to $7.6 billion in Q2 2022, show data from DealStreetAsia DATA VANTAGE‘s latest report, India Deal Review: Q2 2022.
The funding dropped almost 38% sequentially in Q2, from $12 billion in Q1 2022. At 383, the deal volume was also the lowest since Q3 2021.
Given the drying funding tap, the April-June period witnessed mass layoffs at India’s top unicorns, including Byju’s, Ola, Unacademy, Vedantu, Cars24, and Mobile Premier League (MPL), among others.
PE-VC fundraising by India’s startups
It is, however, worth noting that deal value surged 45% to touch $19.6 billion in the first half of this year, compared with $13.5 billion in the same period last year. The rise can be attributed to a strong Q1, which accounted for 61% of the capital raised in H1 this year. Deal volume also shot up 51% year-on-year in H1 2022.
At least 21 companies announced megadeals — PE-VC transactions worth at least $100 million — in the second quarter, collectively raising $3.9 billion, or 51% of the total capital raised in the three-month period. This is a sharp fall from the March quarter when $7.2 billion was raised from 31 megadeals.
VerSe Innovation ($805 million), Delhivery ($304 million), ShareChat ($300 million), Rippling ($250 million), Zepto ($200 million), and Instoried ($200 million) were among the top deals in the quarter.
Only four companies made it to the unicorn club (startups valued at $1 billion or more) in the second quarter, as against 15 in Q1.
Software on the ascent
Broken down by industry, software pipped financial services to emerge as the most funded industry in Q2, attracting $1.4 billion across 67 investments. Software startups had, however, raked in $2 billion across 94 transactions in Q1. Among software startups, the largest round of $250 million was raised by workforce management startup Rippling.
Financial services slipped to the second spot with $1.3 billion in its kitty from 77 deals in Q2 as against $2.3 billion across 85 investments in Q1. Top deals in the industry were Cred ($140 million), CoinDCX ($135 million), Shubham Housing Development Finance ($112 million), FlexiLoans ($90 million), and Kissht ($80 million).
Software, financial services, and media accounted for about 47% of the deal value in Q2.
Among verticals, e-commerce startups led with fundraising worth $1.46 billion in Q2, down about 46% from $2.6 billion in Q1. The growth was fuelled by the $304 million racked up by e-commerce logistics firm Delhivery through an IPO in May. Digital media followed with $839 million in total funding while fintech startups mopped up $615 million.
For the six-month period ended June, however, e-commerce, fintech, and edtech featured among the top three fundraisers, accounting for about 38% of the total deal value.
While the number of pre-seed and seed-stage deals dropped in Q2 to 126 from 170 in Q1, the value rose 13% to $279 million. Growth-stage funding — or investments at Series B stage and later— totalled $4.8 billion across 79 deals in Q2, accounting for about 63% of deal value. This is a 29% drop in value from $6.8 billion in Q1.
Bengaluru, Mumbai, and Gurugram were the top three destinations for venture investments in India in Q2. Among them, the three cities closed 247 transactions worth $6.3 billion, or 83% of all deal value across cities.
Venture capital firms and research firms predict the funding winter will last for at least a year.
“Globally, high inflation is driving monetary tightening. This has led to a material correction in public market multiples, especially in the high-growth technology sector. It will take time for most private technology companies, even with sound business models and economic profiles, to grow into the valuations of their last financings. But… over the long term, we will see stronger businesses emerge,” said Ashish Agrawal, MD, Sequoia India.
The India Deal Review: Q2 2022 report covers fundraising by startups in the region in the first quarter, with extensive data on:
- Top deals of Q2 2022
- Top sectors in terms of fundraising
- Most active investors in the quarter
- Insights from prominent investors
- List of unicorns minted in 2022 so far.
The report is available exclusively to DealStreetAsia – Professional subscribers. Subscribe/upgrade your subscription now to access our entire set of reports. Still not sure? Opt for a one-month trial for only $208.