Winter is here: Start-up funding drops by 80% in September quarter as VCs tighten purse strings

Funding in Indian start-ups declined by a massive 80 per cent in Q3 2022 (July to September quarter) to $3 billion, compared to $14.9 billion in the same period in 2021. Data from industry tracker Tracxn reveals that Q3 2022 funding also declined sequentially by 57 per cent from Q2 2022.

Late-stage deals suffered the most, with a 70 per cent drop from $142 million in Q3 2021 to $42 million in Q3 2022, as investors tightened their purse strings and increased focus on profitability. The average ticket size of deals also witnessed a drop across all funding stages, Tracxn stated.

In an earlier interaction with Business Today, Ashvin Chadha, Founding Partner of Anicut Capital, said, “Some of the biggest venture funds are now becoming slow. There is a focus back on compliances, on getting the house in order. Everybody’s portfolio is suffering because what they did last year does not look so good this year. There is a correction among funds just like in start-ups.”

Only three unicorns — Molbio Diagnostics, 5ire, OneCard — were added in the September quarter,  compared to Q3 2021’s 14 unicorns. Out of the 334 funding rounds closed in Q3 2022, the only startups to raise sizeable rounds ($100 million+) were EarlySalary ($110 Mn in Series D round), CleverTap ($105 Mn in Series D round), OneCard ($102 Mn in Series D round), 5ire ($100 Mn in Series A round), BookMyShow ($100 Mn in Series D round) and InsuranceDekho ($100 Mn in Series C round).

Only 106 start-ups raised first-time funding in Q3 2022 compared to 209 start-ups in Q3 2021, signaling a definite lack of investor confidence even in early stages. “The Indian startup ecosystem is still experiencing the ongoing funding slowdown and the severe macroeconomic conditions gripping the West. We are seeing large PE and VC funds treading cautiously led by significant changes in the investment environment in recent quarters. We expect this to continue until we see signs of stabilization globally,” Abhishek Goyal, co-founder, Tracxn, said.

In a severely funding crunched quarter, the top-three sectors which saw maximum investment were alternative lending, Genomics, and payments. “Genomics is an upcoming sector with great potential but remained untapped by investors till now. It saw maximum investor interest in Q3 2022,  receiving over $231 million in funding, which is higher than the total funding received in the year 2021,” Tracxn stated.  

India’s start-up capital of Bengaluru led the total funding raised, pocketing $796 million, followed by Mumbai ($548 million and Delhi-NCR ($448 million). Blume Ventures topped the investment charts in the seed-stage with 17 deals, while Sequoia Capital ranked highest in early-stage funding with 18 deals. GIC and Sofina led late-stage deals during the quarter with just two investments each.

The funding slowdown is expected to continue for 12-18 months, given global macroeconomic pressure. “Executives across the world anticipate a recession in the near future and are making preparations to cut costs. To add to their woes, the recent energy crisis in the UK and Europe and also the sliding GBP and EUR have increased the likelihood of a global recession,” Neha Singh, co-founder, Tracxn, stated.

Also Read: Why VCs and PEs think funding winter is good, and will end the “drunken” over-investing

Also Read: Funding Winter: Only 11 new unicorns minted in August globally, as VCs conserve cash