Indian startups experienced a significant 75 per cent decline in funding during Q1 2023, raising only $2.8 billion compared to $11.9 billion in Q1 2022, according to a recent report by global market intelligence platform Tracxn. The report attributes this drop in funding to rising inflation and interest rates, which have severely impacted investments amid a deepening funding winter.
Tracxn’s report revealed that no new unicorns were created during the January-March period, a stark contrast to the 14 unicorns established in Q1 2022. Funding volumes shrank primarily due to a 79 per cent reduction in late-stage funding, which amounted to $1.8 billion in Q1 2023 compared to the same period last year.
Regarding early-stage rounds, Tracxn reported that funding reached $844 million, a 4 per cent drop compared to Q4 2022 and a 68 per cent decline compared to Q1 2022. Seed funding rounds in Q1 2023 secured $153 million, representing a 16 per cent decrease from Q4 2022. However, the month-on-month (MoM) comparison shows a more positive trend, as Indian startups witnessed a 54 per cent increase in funding from $777 million in February 2023 to $1.2 billion in March 2023.
The Tracxn report highlighted nine companies that secured more than $100 million in funding rounds, including PhonePe, Lenskart, Mintify, Insurance Dekho, FreshtoHome foods, TI Clean Mobility, and KreditBee. PhonePe raised a total of $650 million in multiple Series D rounds during Q1 2023, resulting in a valuation of $12 billion. Lenskart secured $500 million in a Series J round led by a wholly-owned subsidiary of Abu Dhabi Investment Authority (ADIA), valuing the company at $4.5 billion.
The fintech, retail, and enterprise applications sectors were the primary recipients of funding during Q1 2023. The fintech segment alone witnessed a 150% increase in funding compared to Q4 2022, but this still represented a 51 per cent drop compared to Q1 2022.
Tracxn’s report also indicated stability in the number of acquisitions, with 46 taking place in Q1 2023 compared to 43 in Q4 2022. While the overall funding landscape has been challenging, the recent uptick in MoM funding suggests that there may be some resurgence in investor interest in the Indian startup ecosystem.
