Bangalore, India, 4 March 2023
Only 91 agreements totaling $1.32 billion were made in the third-largest startup ecosystem in the world in February 2023, compared to 308 deals a$4.77 billion in the same month last year.
According to the statistics, companies only succeeded in raising $2.91 billion from January to February 2023, compared to $11.1 billion from 682 deals the previous year. According to a Moneycontrol analysis, PE/VC financing hit a five-year low in January.
“The funding winter was most pronounced in January, and it persisted until the end of the year as well. Transaction pipelines began to slacken significantly in October and November. At that time, investors started advising portfolio businesses to improve their unit economics before seeking outside funding. So, about that time, the pipeline really started to dry up, according to Piyush Kharbanda, General Partner at Vertex Ventures, a company that invests in early-stage businesses, including Licious, FirstCry, Xpressbees, and BinanceAsia, among others.
According to the statistics, Inflection Point Ventures, a previous investment in BharatPe, was the most active venture capitalist in February 2023. Sequoia Capital and TVS Capital Funds each took part in two deals after the VC, who took part in four deals overall.
“Innovation paves the way for new business models, improving customer experience, leveraging value propositions, opening new markets, and launching new products, which in turn results in growth of the organization,” said Rahul Kothari, Business Head, PayUbiz.
Elevation Capital, Matrix Partners, and Accelerate, which also created a $650 million India-dedicated fund, each did not engage in a single deal, while Accelerate finalized just one deal in 2022.
“The majority of funds are holding a sizable amount of dry powder. The only reason these funds are being careful is in case they need to provide financial support for some of the companies in their current portfolio. Investors do not want them to fail immediately due to a lack of cash. It won’t be good for their LPs (limited partners), either, according to Inflection Point Ventures co-founder Ankur Mittal.
It’s interesting to see that conventional private banks took part in fundraising rounds in February; Kotak Mahindra Bank, ICICI Bank, and HDFC Bank all closed one deal. The investment environment was dominated by pure VC investors in February, including Y Combinator, Accel, Kalaari Capital, and A91 Partners, among others.
As a result of its overwhelming optimism regarding India’s startup ecosystem, Tiger Global Management, one of the country’s most aggressive technology investors, failed to clinch any deals for the second month in a row. A frequent investor in India’s IT industry, SoftBank has been cautious since last year and hasn’t closed a transaction yet this year.
“Investors are tending to their current portfolio, which is one of the reasons why huge deals are absent and even at the early stage, there is less deal flow. Hence, you will preserve some dry powder to support them if you are unsure if your best-performing firms will be able to secure a substantial Series C or Series D in this market or if it may take longer than planned, said Mittal of Inflection Point Ventures.
In Mittal’s opinion, investors may do well in the present funding situation. “With the fantastic offers that come our way, we have the option of being more careful. We have the freedom to choose more carefully and take our time in conducting our research. We’re distributing a few startups, We have the luxury today, but there are specific goals to meet before we can fund them,” he continued.
