Investment In Indian Startups In H1 CY23 Lowest In The last Four Years; Funding In D2C, Online Gaming & Foodtech On Uptick: PwC India Report

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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% 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.

Commenting on the current investment outlook for Indian startups, Amit Nawka, Partner – Deals & 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. 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.”

Startup Perspectives for H1 CY23 – A snapshot

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Stages of funding: Early-stage deals accounted for 57% of the total funding in H1 CY23 (in volume terms). In value terms, early-stage deals contributed to approximately 16% 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% of the funding activity in H1 CY23 (in value terms). These represented 43% 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.

M&A transactions: While venture capital (VC) funding declined in H1 CY23, M&A
transactions remained the same when compared to H2 CY22. 80 M&A deals involving start-
ups were executed in H1 CY23. Of these, 80% were domestic transactions and the rest were cross-border transactions. Similar to the VC funding activity, SaaS (23), FinTech (11) and e-commerce and D2C (10) continue to witness the highest number of M&A transactions during H1 CY23.

Sector-wise investment: 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% 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.

City-wise start-up funding: Bengaluru, NCR and Mumbai continue to be the key start-up cities in India, representing around 83% 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.


 

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