VC Funding In Indian Startups Increased In Q3 Of 2023, Giving Relief From Funding Winter.

The pandemic was detrimental to almost all aspects of society, but it has shown good times in the domain of the Indian Startup Ecosystem. The number of companies increased from 471 in 2016 to 72,993 in 2022, creating over 7,000 jobs by March 2022. As per the Economic Survey 2021-22, India has become the world’s third-largest startup ecosystem after the United States and China. Between January 2021 and October 2021, Indian startups raised USD19.3 billion in Venture Capital, aka VC funding, over 1,456 deals, compared to USD 27.5 billion across 1,355 deals between January 2022 and October 2022. Things altered radically after that, though. 

Now, September 2023 proved to be a very promising month for the Indian startup ecosystem, with VC funding almost doubling compared to August and a small decrease compared to the same period the previous year. This development comes as VC funding for 2023 fell to its lowest level ever in August, at $396 million. This month, VC funding investments were $857 million in 83 Indian startups, representing a 116% month-on-month increase. In September 2022, the VC funding amount was $905 million, a 5.3% decrease.

However, it should be emphasised that the monthly VC funding amount has continuously been less than $1 billion since June. The VC funding of $1 billion is significant since exceeding it demonstrates the power of the startup ecosystem. The first six months of the year saw VC inflows hovering around $1 billion, owing to the lack of a major number of large deals. This has been a major contributor to the VC funding needle not moving upward.

The unicorn category, which includes startups valued at $1 billion or more, is a glaring indication of the fundraising winter environment. Only one firm, Zepto, entered this coveted zone in the first nine months of 2023, compared to the debut of 23 unicorns in 2022.

Why is it becoming critical for VC funding in the Indian Startup Ecosystem to reach the value of the $1 billion mark?

The black cloud that is now circling the Indian startup market is governance difficulties. For example, the occurrences surrounding Mojocare, where the business claimed its revenue figures were overstated, do not bode well for the ecosystem since they raise investor concerns. Along with that, the internal financial irregularities, as seen in the case of GoMechanic, can be one of the reasons why investors are so sceptical about installing their capital in Indian Startups.

Apart from many macroeconomic and geopolitical concerns influencing the global VC funding landscape and denting investor attitudes, the Indian startup ecosystem is dealing with increased investor scepticism over company valuations. Valuations have been changing, and investors now take time to do a deep dive into firms rather than committing to acquisitions in a hurry. Everyone is required to return to fundamentals. The major examples of valuation cuts can be seen in the case of Byju and Swiggy, which were once titled awesome startups.

Also, the developments surrounding BYJU do not convey an encouraging signal. The edtech unicorn, which was once considered the flagbearer for Indian startups, is experiencing a number of hurdles, including a lack of new money, investor resignations from the board, and governance issues.

Is there any ray of hope? Are there any sectors where VC funding has given good vibes?

Companies such as Perfios, Zepto, Ola Electric, and Ather Energy, on the other hand, turned off the fundraising winter with sums topping $100 million. While Perfios, a business-to-business fintech solutions provider, led the way with a $229 million Series D investment round, the quarter saw the creation of a new unicorn in quick-commerce delivery service, Zepto, as mentioned above.

According to Tracxn’s data, the enterprise applications, finance, and logistics tech sectors were also among the top achievers in the third quarter of 2023. The enterprise application financing increased by 51% over the previous quarter, while fintech funding increased by 68%. Transportation and logistics technology companies raised $375 million, a 72% decrease.

Route Mobile was acquired by Proximus Group for $718 million during the quarter, while Marico Limited acquired Plix for $45.1 million. In all, 33 acquisitions were completed in Q3, representing a 13% drop.

During the quarter, four firms went public: Drone Destination, Aha Solar, IdeaForge, and Veefin.

Conclusion.

This ‘ recovery’ is a positive trend, but a definitive turn for the better will most likely take a few months to establish. With worldwide adjustments in financial flows as a result of rising interest rates in the US and abroad, there is little question that investor expectations will alter, as will the need for bigger enterprises to transition from the expansion stage, negative flows to a more disciplined financial model. This most likely explains the debt taken on by the larger enterprises in the sample. The critical measure to keep an eye on will continue to be funding for early-stage firms, where the impact of prolonged squeezing can harm the funding pipeline for a long time. 

Despite these issues, it is expected that the impact of these changes will be limited, and the Indian startup ecosystem will return to vitality, bursting with entrepreneurial spirit. Despite the drop in financing, India remains one of the world’s best-performing entrepreneurship ecosystems.

The report’s month-on-month financing surge of 91% from $376 million in August 2023 to $720 million in September 2023 is an encouraging indicator. Although we cannot expect any new unicorn entries in the remaining months of 2023, we can hope the unicorn race, along with robust financial and business models, will make its presence in the upcoming year.