Hit by the ongoing funding winter and macroeconomic headwinds, fundraising by Indian startups hit a seven-quarter low to touch $3.1 billion in the third quarter of 2022, data from DealStreetAsia DATA VANTAGE‘s latest report India Deal Review: Q3 2022 show.
Not only was the amount less than half the financing secured in Q2 2022, the deal volume was also down by almost 10% sequentially at 345. On a year-on-year basis, deal value in the quarter under review fell by a stark 83%, while deal count was down 34% from Q3 2021.
The strong fundraising witnessed in the first quarter of the year fizzled out in Q2 and further weakened in Q3. Consequently, for the nine-month period, i.e. Jan-Sept 2022 (9M 2022), the deal value fell 29.3% to $22.8 billion, compared with $32.2 billion in the year-ago period. Deal volume, however, was up 11% at 1,245 from the corresponding period last year, thanks to a strong Q1.
The divergence in deal value and volume in 9M 2022 is a sign of investors flocking to early-stage deals where the cheque sizes are smaller.
PE-VC fundraising by India’s startups
There were only five mega-deals ($100 million and above) in Q3 2022, down from 21 in Q2 as funding in growth- and late-stage deals continued to decline amid subdued investor sentiments.
The number of megadeals has been on a free fall since Q3 2021, when it stood at 43, to single-digit territory in the quarter under review. The share of megadeals in overall fundraising, too, fell to 19.6% in Q3, compared with 52% in Q2. In Q3 2021, megadeals had accounted for 78% of the overall fundraising.
Four Indian startups — Shiprocket, Molbio Diagnostics, 5ire Technologies and OneCard — attained unicorn status (i.e a valuation of $1 billion and above) in the July-September period. Between Jan-Sept, India produced a total of 23 unicorns.
Financial services is Q3’s top fundraising industry
Among industries, financial services led funding in Q3 with a total of $708 million in its kitty across 55 transactions. This is, however, way below the $1.3 billion garnered in Q2. Digital lending platform EarlySalary raised the largest round among fintechs — $110 million in a Series D round led by TPG’s The Rise Fund, and Norwest Venture Partners.
Software slipped to the second spot with a total of $512 million funding across 54 transactions. Funding for software startups peaked during the pandemic because of factors like increasing digitisation and demand for scalable solutions. The funding in the space has been on a decline since.
Within software, customer engagement and user retention software platform, Clevertap raised the largest round of $105 million in Series D funding led by global investment group CDPQ.
Together the top three industries — financial services, software and education — raised $1.58 billion, accounting for about 49% of the total deal value in Q3.
Fintech leads among verticals in Q3
Financial technology startups overtook e-commerce to become the most funded vertical in Q3 after collectively mopping up $597.5 million across 41 transactions. This is, however, a tad lower than the $615 million raised in the previous quarter.
Fintech startups catering to the requirements of enterprises and even consumers are increasingly grabbing investor attention. At 87%, India has the highest fintech adoption rate in the world against the global average of 64%. India’s fintech industry is expected to grow at a CAGR of 20% to reach a transaction value of $138 billion in 2023 from $66 billion in 2019, according to Invest India report.
Pain in growth-stage funding
While the pain at the growth-stage continues, early-stage deals kept India’s startup story burning bright. Pre-seed and seed stage deals drove volumes in Q3 at 139, up 10% from 126 in Q2. These early-stage startups garnered a total of $202.9 million, compared with $279 million in the second quarter.
Meanwhile, growth-stage funding — or investments at the Series B stage and later (including private equity) — dropped 62.5% to $1.8 billion across 50 deals in the third quarter from $4.8 billion across 79 deals in Q2.
“Until the past excesses are cleared, the founders will find it challenging to attract big-ticket investors unless they drastically cut their valuation expectations. There is enough evidence that economic downturns, like the one we are witnessing now, are ground zeroes wherein investors find career-defining investments,” said Anirudh A Damani, founder and managing partner, Artha Venture Fund.
Bengaluru, Mumbai, and Gurugram remained the top three destinations for venture investments in India in Q3. The three startup hubs together closed 361 transactions worth $2 billion, accounting for about 63% of the total investments in the quarter. Pune moved up to occupy the fourth spot, replacing Delhi, which slipped to the sixth position.
The India Deal Review: Q3 2022 report covers fundraising by startups in the region in the third quarter of 2022 and first nine months of 2022, with extensive data on:
- Top deals of Q3 2022 and 9M 2022
- Top sectors in terms of fundraising
- Most active investors
- 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? You can buy only this report for $150.