The Indian startup ecosystem did not escape the fundraising woes that struck the rest of the world in the third quarter: Startups in the country raised 50% less than they did a year ago and raised less than they did in the second quarter as well, according to private market database Tracxn.
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As we noted last week, venture capital investment hit some big bumps in the last quarter. Still, the declines we’re seeing in terms of deal volume and value in India this year is stark in comparison, especially for a country that’s as populous, online and replete with technical talent as this one. Venture investment totals could clock in at less than $1 billion per quarter if this trend doesn’t reverse in the next quarter or two.
Continuing our deep dive into the venture capital market (web3, Canada, charts) in the third quarter, we’re looking at what’s happening in India today. We’ll start with high-level numbers, then look at sectors, and also hear from Manish Singhal, a partner at deep tech–focused pi Ventures, an Indian VC firm with more than $100 million under management.
Not a great time to be a startup
Per the Tracxn data, Indian startups raised $1.5 billion in the third quarter of 2023, 54% less than the $3.4 billion they raised a year ago, and the total number of deals fell by a massive 71% to 166 in Q3 2023 compared to 592 in Q3 2022.
Those numbers are pretty dismal when compared to the peak times of Q4 2021 and Q1 2022, when startups in the country raised $10.9 billion and $11.8 billion, respectively.
Other data points show similar declines. Only 60 companies raised money for the first time, 64% less than last year. And a paltry 57 companies raised Series A and later rounds, 71% fewer than a year earlier.
Less capital, fewer rounds, and a shrinking cohort of newly funded startups make for a smaller Indian venture capital market.
Still, it’s not all bad news. We did spot some bright spots: While seed and early-stage investments in the country were 75% and 74% smaller than Q3 2022, respectively, late-stage dealmaking hit the $1 billion mark the quarter. That’s still 33% less than a year ago, but that’s a modest decline compared to the other stages.
All that late-stage capital resulted in two more Indian unicorns in the third quarter. That’s two less than Q3 2022’s four unicorns, but it’s worth recognizing that two startups reached billion-dollar valuations even in this climate.
There’s some momentum, though
India’s two new unicorns, Zepto and Zyber 365, focus on instant grocery delivery and web3, respectively — not sectors we’d have expected. But except for those companies, investors arguably don’t appear to be very interested in those industries: The most funded sectors in Q3 were enterprise applications, fintech and transportation and logistics tech, according to Tracxn.
However, as is quite common, the data is somewhat skewed by larger deals: 52% of last quarter’s fintech funding came from a single transaction, Perfios’ $229 million Series D round. But that couldn’t stop investment in the sector from dropping 55% compared to Q3 2022.
Venture interest in electric vehicles and adjacent categories, however, was evidenced by the fact that there were multiple deals in the space. Ola Electric netted $140 million last month, Ather Energy got a $108 million investment, and Battery Smart raised a good $33 million.
But looking at top deals yields only one perspective; we can learn more by asking which sectors didn’t see much activity. Pi Ventures’ Manish Singhal noted the absence of mega-rounds in the consumer tech sector in Q3, which he said largely explains the low investment totals in Q3.
“Since consumer companies raise much larger rounds than tech companies, the impact on overall numbers is much higher if DTC startup funding slows down. Q3 was a slow quarter for B2C companies, and hence you are seeing the dip in numbers.”
In contrast, deep tech, which is pi Ventures’ sector of predilection, didn’t slow down. “Early stage activity in [deep tech] is quite high and the firm itself is investing at a heavy pace,” Singhal said. One of his portfolio companies, Pixis, raised an $85 million round in September for its AI-powered marketing platform.
15 sectors pi Ventures expects deep tech to disrupt in the next 5 years
Unfortunately, even deep tech companies aren’t out of the troughs. Singhal warned that “some of the euphoria around areas like GenAI investments is expected to come down.” And companies that are not top performers are having a tougher time. “If you are in the middle of the pack, then funding is harder and takes longer for sure,” he said.
But there’s at least one data point that’s not bad news: Monthly comparisons yield a better picture. Indeed, funding amounted to $720 million in September, compared to $376 million in August — a 91% increase! However, that might have more to do with the global seasonality of venture capital than with the Indian tech sector.
The next few months, too, will likely depend on factors outside of startups’ and VCs’ control. “I think overall sentiment is improving, although it might take another one or two quarters to start showing an uptick,” Singhal said. “We expect the overall funding scenario to be a function of overall macro and geopolitical environments, which are very fluid currently.”
Let’s hope that uptick comes sooner than later.
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