Indian startups face financial crunch, 35% drop in funding

As the funding winter deepens amid growing layoffs, India saw a massive 35 percent drop in funding this year, from $37.2 billion in 2021 to $24.7 billion (till November in 2022) and edtech startups saw a significant 39 percent drop compared to the same period last year, a report showed on Thursday.

The significant drop in funding is attributed to a decline in late-stage investments, which fell by 45 percent from $29.3 billion in January-November 2021 to $16.1 billion for the same period this year, according to data provided by Tracxn, a leading global market intelligence platform.

Seed stage rounds also experienced a contraction and dropped by 38 percent as compared to the previous year.

The report said that 22 startups entered the unicorn club in the reported period, as compared to 46 in the previous year.

The number of big-ticket ($100 million and above) funding rounds dropped by 35 percent to 55 as compared to 85 in the reported period.

The number of funding rounds saw a drop of 30 percent, from 2,647 last year to 1,841 this year, the report said.

BYJU's raised $1.2 billion in 2 such more than $100 million rounds, followed by VerSe and Swiggy, raising $805 million and $700 million, respectively.

Earlier this week, food tech platform HealthKart raised $135 million in a funding round led by Temasek, with participation from A91 Partners and Kae Capital, somewhat breaking the worst funding cycle.

"The funding winter, which began in Q4 of 2021, will persist in 2023 as well. In order to survive the drought, startups are taking unit economics more seriously, which has been illustrated through the series of mass layoffs that have occurred this year," said Neha Singh, Co-Founder, of Tracxn.

Led by the edtech sector, Indian startups have laid off more than 16,000 employees to date, and the number is only growing.

Singh said: "Although we are currently experiencing a slump, the situation is prompting startups to establish clearer and more sustainable paths to growth, as investors' evaluation metrics begin to emphasize good profitability over growth at all costs."

This year saw enterprise applications, fintech and retail emerge as the top-performing sectors in terms of funding.

However, fintech and retail were not adverse to the effects of the funding slowdown and saw a drop in funding -- 57 percent and 41 percent, respectively -- compared to the same period last year.

The disruption to the fintech sector has been brought on by an RBI policy that prohibits non-bank financial institutions (NBFIs) from loading their prepaid instruments using credit lines and the ruling impacted the business model of companies like Slice and Uni Cards.

Furthermore, with crypto experiencing major volatility in asset prices this year, crypto exchanges across the globe as well as in India are facing operational difficulties.

Bengaluru led the maximum total funding raised, with the most active investors of the year being LetsVenture, AngelList, and Y Combinator. (KB/IANS)