Fintech Startups Steal The Show In Q1 2023, Raise 45% Of Total Funding

Amid the ongoing funding winter and multiple regulatory changes, fintech emerged as the top sector in the first quarter of 2023, accounting for almost 45% of the funding raised by Indian tech startups during the period.

Overall, the funding raised by Indian startups plummeted 75% to $3 Bn during Q1 2023 from $12 Bn in the corresponding quarter of 2022, as per Inc42’s ‘Indian Tech Startup Funding Report Q1 2023’.

Populated with over 4,000 startups, the fintech sector raised $1.28 Bn funding in Q1 2023, followed by the ecommerce segment. Ecommerce startups raised $633 Mn during the quarter, while enterprisetech was a distant third with funding of $194 Mn. 

While fintech startups raked in the highest amount of funding, enterprisetech and ecommerce sectors surpassed fintech in terms of deal count with 41 and 40 deals, respectively, during the quarter. At 25, fintech funding deals accounted for just 11.7% of the total deals during the March quarter. 

Key Trends 

Decline In Funding & Deal Count: While the overall deal count declined 58% (YoY) to 213 deals in Q1 2023 from 506 deals in the year-ago quarter, funding deals in the fintech sector plummeted 69% from 81 in Q1 2022.

The amount of funding raised by fintech startups also fell 24% from $1.7 Bn in Q1 2022.

Stage-Wise Funding: While late-stage fintech startups bagged the highest funding deals in Q1 2023, the ecommerce sector led growth-stage funding. Enterprisetech led both bridge and seed-stage funding rounds in terms of both funding amount and deal count.

The total number of late-stage funding deals in Q1 2023 stood at 22, while growth-stage startups saw 51 funding deals. At 102, seed stage saw the maximum number of deals during the quarter.

Top Fintech Funding Rounds: PhonePe was among the major startups which raised funding in Q1 2023. After shifting its domicile to India in the latter half of last year, the Walmart-backed fintech giant raised $350 Mn in a funding round led by General Atlantic in January this year to enter the decacorn club. Soon, it raised another $100 Mn in primary capital from the likes of Ribbit Capital, TVS Capital Funds, and Tiger Global. Last month, PhonePe raised $200 Mn in primary capital from Walmart.

Despite a major lag in late-stage startup funding over the last few quarters, the fintech space received the highest amount of late-stage funding in the first quarter of 2023. The total funding raised by late-stage fintech startups stood at $1.8 Bn during the quarter, with a median ticket size of $21 Mn.

Besides PhonePe, lendingtech startup KreditBee raised $100 Mn from Advent International in its extended Series D round. It must be noted that the startup closed its Series D round in Q1 despite a major overhaul in its business last year after the Reserve Bank of India (RBI) barred non-bank prepaid payment instrument (PPI) issuers from loading credit lines on cards.

Neobanking startup Stashfin also bagged $100 Mn in debt funding from InnoVen Capital and Trifecta Capital in March.

Meanwhile, early-stage rounds in the fintech space included Mintoak’s $20 Mn Series A round and InsuranceDekho’s $150 Mn Series A round.

Other Key Sectors Gaining Investors’ Interest

In a survey by Inc42, Indian VCs and angel investors voted enterprisetech as the most preferred sector in Q1 2023. The survey comprised over 30 active VC firms and more than 60 angel investors in the Indian startup ecosystem.

Contract lifecycle management SaaS startup SirionLabs’ $25 Mn funding round and blue and grey-collar job portal WorkIndia’s $12 Mn pre-Series B funding round were among the major enterprisetech deals of Q1 2023.

While enterprisetech beat fintech in terms of deal count in Q1 2023, the funding deals in the sector sharply declined from 109 in Q1 2022. Also, enterprisetech led the race in terms of both deal counts and funding received ($2.03 Bn) in the first quarter of 2022.

Meanwhile, investors are also bullish on the deeptech space given the government’s focus on areas like spacetech, robotics, electric vehicles (EVs), and AI automation, as per the survey.

However, the funding data doesn’t reflect this as funding and deal counts declined on a year-on-year basis in the deeptech sector. Deeptech startups raised just $147 Mn in Q1 2023 as against $912 Mn in the year-ago quarter, while the deal count also fell to 21 from 39 in Q1 2022.

However, these numbers don’t look too disappointing given the overall slump in tech startup funding. Also, there are only a few segments within the deeptech sector, like EV, spacetech, and AI, that are able to raise funding. 

While IoT startup Intangles Lab raised $10 Mn in Series A round from Baring Private Equity Partners India in February, EV battery manufacturer Log9 Materials bagged $40 Mn in its Series B round led by Amara Raja Batteries and Petronas Ventures in January. 

Recently, spacetech startup SatSure raised an undisclosed amount of strategic investment from ICICI Bank, HDFC Ltd, and Kotak Mahindra Bank.

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