Indian startups raise $1.27 billion in November, highest since onset of funding slowdown in June

Industry experts said the latest data would be for deals that closed a few months ago, as typically that is the time needed to officially announce raising of funds. Despite a slight increase in deal activity, tech investors said it does not point to a sustained recovery. Late-stage funding also continues to remain under stress.

The data showed that after June, when Indian startups raised $2.36 billion, funding activity slowed down to around $877 million in July, $981 million in August and $787 in September. The last two months, however, have recorded a gradual recovery, with total fundraising of $1 billion in October.

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Separately, data provided by market intelligence platform Tracxn showed that of the top 10 deals in 2022, nine had closed in the first half of the year.

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Anand Lunia, founding partner of India-focussed seed-to-early-stage venture capital firm India Quotient, said: “November deals are the ones that were closed in July-August, and that’s when we also saw a lot of transactions coming our way happening.”

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On why there is an uptick in funding activity now, Lunia said: “The reason is that the 2021 hangover was over in the minds of VCs in January-February. But the founders were mentally in 2021 till June or July this year. Their expectations of valuations remained in the same place.”

Valuation Reset


A VC investor who spoke to ET on the condition of anonymity said founders were initially waiting for better valuations, but eventually signed off on deals as they began to approach the end of their cash runway. “In the first quarter of 2022, there were founders who wanted the typical $5 million for 20% seed funding, but investors had become realistic by then. One founder who wasn’t ready to do a $3 million deal with us in February-March, came back and signed a $1 million raise in August,” this person said.

Bengaluru-based Arpit Agarwal, an investor with early-stage fund Blume Ventures, said: “The market continues to be slow … There may have been deals that the founders were looking to close and concluded at lower-than-expected valuations. Many founders managed to get a lot of capital last year and wouldn’t have required funds in the first half of this year … I don’t see this yet as a sign of the market coming back,” Agarwal added.

Entrepreneurs are still waiting to ride the funding winter out by not opting to raise a new round. “I would like to avoid a fundraise as much as possible in the next six months. Valuations will be stressed even for relatively better businesses with sound economics. I have taken a small amount of debt for working capital and that’s better now than taking money via expensive equity sale,” said the founder of an online-focussed food brand.

“The focus is to further strengthen the unit economics and show profitability, which is the new benchmark among private equity investors as well as public market investors,” he added.

Looking Forward


While the upward momentum in funding activity is expected to continue for the next few months, not many investors are signing cheques for post Series-B rounds, Lunia of IndiaQuotient said.

“People will wait and watch to see who really performs and who survives before getting into more Series-B deals. Second half of next year, Series B, C, D deals will start happening but first half — it is unlikely that much will happen. Across the board, VCs are now focussing on seed only,” Lunia said.

During a panel discussion at the ET Startup Awards in November, on the reset in the technology industry, Flipkart Group chief executive Kalyan Krishnamurthy
said the next 12-18 months would see Indian startups going through turmoil and volatility, with the funding crunch starting to affect these new-age tech companies by the early part of next year.

Things would get better after that, and companies should focus on surviving this period, he said. “It is going to be tough next year… I think a lot of people will hit the market (for fundraising) between April and June next year. That’s probably the moment of truth for all of us in the ecosystem,” he said during the discussion.

The VC investor cited earlier also said there would be more pain for the startups community before things start getting better. “Right now, there has been no cleaning up or correction of the ecosystem in India the way it has been in the US. All the unicorns that got made in 2021 are still there. So far, only correction witnessed has been in the form of 10% or 20% layoffs,” he said, adding: “There will be more before things start improving.”