NEW DELHI: In line with the global slowdown, start-up funding in India hit a two-year low in Q3CY2022 (July-September period) at $ 2.7 billion across 205 deals when compared to $6.6 billion funding across 285 deals in Q2CY2023 (April-June), as per the PwC India report titled, “Startup Deals Tracker - Q3 CY22”.
The fall in funding activity is steeper on an annual basis as investors had poured a record $11.4 billion into the Indian startup ecosystem across 326 deals in the Q3 of CY2021. “It is tough to predict how long the slowdown in funding will last but clearly, both founders and investors are being more selective and cautious in deal-making,” Amit Nawka, Partner - Deals & India Startups Leader, PwC India, said.
According to Nawka, early-stage start-ups will be able to raise capital more easily as they are typically more insulated than late-stage deals from fluctuations in the public markets. The performance of loss-making digital companies on India’s stock exchange has been abysmal with heavyweights such as Paytm and Zomato burning billions of investors’ money. The average deal ticket size fell from $23 million in Q2CY22 to $13 million in Q3CY22, as per the report. Barring EdTech and e-commerce B2B (business-to-business), funding activity plunged across all sectors during Q3CY22.
As per the PwC report, only two start-ups in India attained the unicorn status in Q2 CY22 and no new decacorns ($10 bl valuation) were added in this quarter. Globally, Q3 CY22 produced 20 unicorns and 45% of them are from the SaaS segment. PwC estimates that there are 84 unicorns in India as of September 31, 2022.
According to PwC, the silver lining for the global startup ecosystem is the ‘dry powder’ which refers to the amount of committed but unallocated capital, PE and VC firms have. Globally, there is $562 billion in dry powder available for start-ups in VC funds. “Start-ups with business models requiring high burn and delayed monetisation, such as those in B2C markets, have the greatest exposure to funding risk,” said Rahul Chandra, Co-Founder and Managing Director at Arkam Ventures.