Even as venture investments began on a tepid note in 2023 amid an extended funding winter and macroeconomic uncertainties, startups scooped up $2.95 billion in the October-December quarter (Q4), marking a 32% increase in funding over Q3, according to data from DealStreetAsia DATA VANTAGE‘s latest report India Deal Review: Q4 2023.
The deal volume increased 13% to 237 over the previous quarter when startups amassed $2.23 billion through 209 transactions.
On a year-on-year basis, however, fundraising by value fell almost 23%, while the volume was down 25% in Q4, triggered by a slew of factors including monetary policy tightening worldwide, rising inflation, and global economic slowdown.
The share of deals with disclosed funding sizes rose to 89% in Q4. Of the total 237 deals in the quarter, the sizes of 211 transactions were disclosed, the data showed.
Megadeals, or deals worth at least $100 million and above, have been on a downward trajectory since Q2. Although the number of such deals was unchanged at five over the previous quarter, their value was up 13.6% to $935 million in Q4. In comparison, seven megadeals worth $1.05 billion were announced in Q4 2022.
For the whole of 2023, funding shrunk by more than a half to touch $11.8 billion from the previous year’s $26.6 billion. Deal volume was also down 40% from 2022’s 1,562 transactions. Month-wise, the funding in May at $1.55 billion through 90 transactions hit the peak, while funding in August at $472 million marked the lowest investment since pandemic-hit June 2020 when startups in the country could collect only $416 million.
Instant grocery delivery startup Zepto and non-banking lending company InCred were the only two startups to turn unicorn in 2023, which is considerably below the 2022 and 2021 levels.
Retail tops the funding charts
Retail overtook software and financial services to emerge as the most funded industry in Q4. Retail startups cumulatively garnered $500 million, registering a growth of about 80% in value over Q3. At 27, the deal count was also up 59% Q-o-Q. Within retail, business-to-business (B2B) e-commerce startup Udaan raised the largest round of $340 million led by UK savings and investment firm M&G Prudential.
Financial services, too, moved up to occupy the second spot with a total funding of $408 million through 33 transactions. In the biggest deal within the industry, cross-border neobank Zolve raised $100 million in a warehouse debt facility. Software slipped to the third position after raking in $397.6 million through 29 transactions, recording a drop of about 34% over Q3.
Broken by verticals, e-commerce emerged as the most funded vertical in Q4 with total funding worth $939.4 million across 56 transactions as against $380 million in Q3.
Electric/hybrid vehicle startups occupied the second spot after scooping up $400 million through 10 deals, recording an increase of 32% in value over Q3. Meanwhile, fintech slipped to the third spot after raking in $193.3 million through 21 transactions, a drop of almost 42% over Q3.
In an interesting development, edtech dropped out of the top 10 verticals for the first time since 2020.
Bengaluru remains startup hotspot
Bengaluru, Mumbai, and Gurugram were the top three destinations for venture investments in Q4 in the same order. The three startup hubs together closed 153 transactions worth $2.3 billion, accounting for about 79% of the total investments in the quarter. The three cities had seen 123 transactions worth $1.4 billion in Q3.
Delhi slipped to the fourth spot from third in the previous quarter with a total $162 million of funding across 21 transactions.
Growth-stage deals recover
Growth-stage funding — or investments at the Series B stage and later (including private equity) — totalled $1.7 billion across 43 deals in Q4, accounting for about 58% of the deal value. This marks a growth of about 30% over Q3 when growth-stage deals raked in a total of $1.31 billion across 29 transactions.
XpressBees ($80 million), Zetwerk ($120 million), Udaan ($340 million), Bizongo ($50 million), GreyOrange ($135 million), InCred ($60 million), Clove Dental ($50 million), and Husk Power Systems ($43 million) were among the startups that raised growth rounds in Q4.
About 58 startups closed pre-Series A/Series A rounds worth $356.5 million in Q4 as against $250.5 million across 55 transactions in Q3. Pre-seed and seed-stage funding also rose about 19% to touch $130.9 million.
Top investors
Angel investing platform Inflection Point Ventures (IPV) was the top investor in Q4 with a total of 10 investments, including Urban Matrix, Oorjaa, Answer Genomics, Welcome Cure, Conscious Chemist, FroGo, Happy Nature, O’ Be Cocktails, Onedios, and AllTrak. In comparison, IPV had made 13 investments in the previous quarter.
We Founder Circle and its startup accelerator EvolveX together made a total of eight investments in Q4 as against 16 in Q3. Peak XV Partners (formerly Sequoia Capital India & SEA) and its accelerator platform Surge followed with a total of six investments in the fourth quarter as against eight in Q3.
The India Deal Review: Q4 2023 report has extensive data on:
- Top deals of Q4 2023
- Top sectors by fundraising
- Megadeals clocked by startups in Q4
- Most active investors in Q4
- Insights from prominent investors
The report is available exclusively to DealStreetAsia – DATA VANTAGE subscribers. Subscribe/upgrade your subscription now to access our entire set of reports.