Investment In Indian Startups In H1 CY23 Lowest In Last Four Years: Report

The Indian startup ecosystem reported the lowest six-month funding in the last four years in H1CY23 at USD 3.8 billion across 298 deals - a decline of  nearly 36 per cent as compared to H2 CY22 (USD 5.9 billion). 

Fintech, SAAS and D2C continued to be the most funded sectors in H1 CY23, as per the PwC India report titled “Startup Perspectives- H1 CY23.” 

During the last few quarters, despite challenging funding market conditions, investors have shown strong support for their portfolio companies by doubling down on their investments in companies that demonstrated positive growth, the report stated. 

Amit Nawka, Partner - Deals and India Startups Leader, PwC India said, “A funding winter is just a season in a startup’s journey. There is a slowdown in startup funding despite significant untapped capital reserves held by venture capitalists (VCs). Active VC firms in India have secured new funds in the past year and we can expect the pace of investments to pick up in the next few months."

Nawka added that in the interim, there has been an increase in the due diligence being carried out by investors before making investments, both in terms of detailing as well as coverage - from typical finance and legal, to areas like technology, HR and business processes - to ensure that the startups have a robust corporate governance framework.

The report mentioned that early-stage deals accounted for 57 per cent of the total funding in H1 CY23 (in volume terms). 

In value terms, early-stage deals contributed to approximately 16 per cent of the total funding in H1 CY23 but was at its lowest in H1 CY23 as compared to the previous two years. Growth- and late-stage funding deals accounted for 84 per cent of the funding activity in H1 CY23 (in value terms). 

These represented 43 per cent of the total count of deals in this period. The average ticket size in growth-stage deals was USD 19 million and late-stage deals was USD 52 million during H1 CY23.

Talking about sector-wise investment, it added that SaaS, D2C, fintech, e-commerce B2B and Logi and autotech continue to be the top five invested sectors based on the funding received in the first half of the year. 

These contribute to approximately 89 per cent of the total funding received in H1 CY23 in value terms. In the same period, the D2C and Online gaming sectors each saw investments increase by almost 3x that of H2 CY22. In the foodtech sector, investments increased by four times in H1 CY23 compared to H2 CY22 in value terms.

Notably, Bengaluru, NCR and Mumbai continue to be the key startup cities in India, representing around 83 per cent of the total start-up funding activity in H1 CY23. 

"Decline in funding activity was noted across all cities in H1 CY23 barring Chennai, which witnessed higher funding in the SaaS space," it mentioned.