Financing for Indian venture capital-backed startups has fallen to the lowest levels since early 2020


While it seems everywhere to see a significant decline in venture capital funding, some countries are seeing a very sharp decline.

India – which like many regions It was 2021—It’s one of those areas that has seen a clear decline.

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Financing in India fell to its lowest level since the first quarter of 2020. Venture capital-backed firms took in $2.9 billion in the third quarter of this year, down a whopping 66% from the previous quarter and a staggering 81% drop from the third quarter of this year. Same quarter last year.

Deal flow has hardly seen a significant drop, but the numbers were still low. More than 420 deals were announced in the third quarter, down 12% from the second quarter and down 32% from the same period last year.

“The financing environment globally has weakened significantly, and India is no different,” he said. JV Ravishankargeneral manager at Sequoia Capital India.

We have seen a number of hedge funds and global investors decline without a local/regional presence from the market to focus on the core markets,” said Ravishankar, adding that the significant decline should also be viewed in the context of a very prolific market in 2021.

Asia issues

To this point, India is certainly not alone in this decline. Sinking investment finance in Asia Lowest level in 10 classes, reflecting what is happening in public markets, and investors have slowed private corporate funding with only $21.2 billion for start-ups in the region. This is a 26% decrease from the second quarter and a staggering 56% decrease from the third quarter of last year. The total amount of funding represents the lowest investment since the first quarter of 2020, when the world was just entering a pandemic.

Many will likely point to China for such a decline, especially with the regulatory crackdown on tech companies there. While numbers in China fell significantly from quarter to quarter — Chinese startups saw investment of just $9.6 billion last quarter, compared to $18.5 billion in the same quarter in 2021 — India saw a more pronounced drop in project financing by a percentage.

“There was a big dip from the big cross-boxes —Tiger GlobalAnd the SoftBanketc.”, said Shwetanic FirmaCo-founder of New Delhi Leo Capital. “Typically these funds have led the rounds in later stages with big checks, so cutting expenses appears as a significant reduction in the amount of funding.”

Figures show that the big late stages and growth rounds – where cross money is usually involved – saw the biggest declines in India during the third quarter. This quarter saw only $1.5 billion allocated to Indian startups for those large and late rounds – a 76% drop from the second quarter, which saw $6.2 billion invested in such rounds.

More dramatically, the third-quarter numbers represent an 89% decrease from the $13.6 billion investment in the third quarter of 2021.

These numbers are not surprising Late stage rounds and growth in the United States also declined and globally, but it shows that the trend is affecting regions with less mature ecosystems for technology startup.

Ravishankar said growth rounds and growth lags are the most affected, due to the closing of the IPO windows, and therefore companies have no near-term liquidity prospects.

This does not mean that there were no big rounds in the region in the third quarter. education technology giant upGrad A nearly $210 million investment round closed in August and the fintech platform FPL . techniques He raised $100 million in Series D, and minted it as a unicorn in July.

However, such big deals are becoming few and far between as investors become more wary of spending big money at big valuations and big crossover investors retreat.

Early and seed

All this does not mean that the previous rounds were not affected.

Seed and angel financing — which totaled nearly $400 million in the third quarter — in the region decreased about 16% quarter-to-quarter and 4% year-over-year.

Early-stage financing was about $1 billion in the third quarter, down 47% from the second quarter and 32% from the third quarter of 2021.

“It looks like the early stage has recovered in the last few weeks and we are seeing some buoyancy back here,” said Ravishankar.

What’s Next?

The current downturn has affected most sectors, including SaaS, fintech and B2B, Ravishankar said.

But some sectors such as education technology have been further affected as a result of the strong return of offline markets.” Ravishankar said. “On the positive side, there is more demand for profitable and growing consumer and financial services companies.”

Just like in the US, investors are looking forward to strong cash flow and profitability or at least a roadmap for it.

“The economic downturn has affected all businesses, but companies in places with high growth but unclear monetization” have been hardest hit, Firma He said. Three words – the path to profitability – is back.

And while investors don’t expect that to change in the near future and believe that the fourth quarter may resemble the currently ending third quarter, there is still some light at the end of the tunnel.

“We expect the rest of the year to remain sluggish and all eyes are on the actions of the United States feed her,” Ravishankar said. “We are cautiously optimistic about 2023 as there are several funds that have raised significant capital in 2021/2022 and will be looking to pick up interesting opportunities in the market.

Verma adds that while more pain is likely in the short term, from a long-term standpoint this is a great time to invest.

“We will also see more (local institutions and households) bring later-stage capital to the table, making the ecosystem more resilient in the future,” Verma said.

methodology

The data in this report comes directly from Crunchbase, and is based on reported data. Data reported as of October 3, 2022.

Note that data lag is more pronounced in the early stages of project activity, with seed funding amounts increasing significantly after the end of a quarter/year.

Please note that all funding values ​​are given in US dollars unless otherwise noted. Crunchbase converts foreign currencies into US dollars at the spot rate prevailing from the date of funding rounds, acquisitions, IPOs and other financial events. Even if these events are added to Crunchbase long after the event is announced, forex transactions are converted at the historical spot rate.

Glossary of Financing Terms

Seed and Angel consists of seeds, pre-seeds and angel rounds. Crunchbase also includes adventure rides from an unknown chain, crowdfunding stocks and convertible securities of $3 million (USD) or less.

The early stage consists of Series A and B rounds, as well as other round types. Crunchbase includes adventure tours from the unknown series, venture companies and other tours over $3 million, and those under or equal to $15 million.

The late stage consists of Series C, Series D, Series E and project rounds with suffixes following the Series [Letter]Naming convention. Also included are adventure tours from the little-known series, venture companies and other tours valued at over $15 million.

Tech growth is a round of private equity sparked by a company that has already raised a “project” round. (So, any round of predetermined stages).

Clarification: Dom Guzman

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