Funding Winter: Indian Startup Funding Declines 77% YoY In Oct 2022

With only two months to go in 2022, it has been well-established that Indian startups could not keep up the momentum that the year 2021 had set. Over the past 10 months, startup funding has reduced at a nearly constant rate, sending alarm bells ringing across the ecosystem.

October 2022 saw Indian startups raise $1.3 Bn in funding (as of October 30). While this is a 60% improvement over September’s $810 Mn, the month gone by still recorded a 77% fall in funding compared to October 2021’s $5.6 Bn.

Interestingly, the number of funding deals remained the same as in September, reflecting a possible increase in average ticket size. However, the data has been skewed by the three mega deals that took place this month.

BYJU’S (having laid off 2,500 employees earlier this month), Ecom Express and Udaan raised more than $100 Mn in October. The three deals were worth $537 Mn, or 41% of all funding raised last month.

Stage-wise, only the growth stage funding saw a rise, increasing by 2.43X year-on-year (YoY).

The late stage registered the most significant decline, while even the seed funding fell this month after recording a good streak of YoY increases over the past few months.

In terms of individual sectors, edtech managed to secure the top spot, emerging as the investor favourite in October 2022.

On the other hand, ecommerce, enterprisetech and logistics startups secured more funding than last month’s favourite fintech, which fell to fifth among the sectors with the most funding in October.

Although a disproportionate share of funding in both edtech and logistics went to BYJU’S and Ecom Express, respectively. Even in ecommerce, Udaan’s $120 Mn accounts for 45% of the total funding in the sector last month.

In terms of funding deals, ecommerce emerged as the investor favourite with 27 total deals. Enterprisetech and fintech were the only other sectors to have registered double-digit deals with 25 and 15, respectively.

Incidentally, Bengaluru retained pole as the startup hub that attracted the most funding in October 2022. Bengaluru-based startups secured $582 Mn last month, as Delhi-NCR secured second place and Mumbai completed the podium.

In terms of funding deals, however, Delhi-NCR secured the top spot with 33 deals, two more than Bengaluru’s 31 deals.

The Indian startup ecosystem is going through a rough phase at present. The year 2021 was truly a watershed moment. For context, as of October 30, 2022, Indian startups have raised $22.9 Bn this year. At the same time last year, Indian startups had already secured $32.9 Bn, an eye-watering $10 Bn more.

While recent events have had a significant impact on Indian startup funding – the Russian invasion of Ukraine has sent the economies of Europe and the US on a downward spiral. 

With a strengthening US dollar, many Indian unicorns with valuations close to $1 Bn are at risk of not being unicorns anymore. A more visible impact of the dollar’s rise (at everyone’s expense) is the reduced liquidity with investors and hence reduced startup funding.

However, the biggest takeaway from this funding winter has been the renewed focus on business models, cash burn, a visible path to profitability and positive unit economies. These aspects were (kind of) forgotten in the last year’s FOMO-induced funding rush.

Indian startup funding might still bounce back to the 2021 level next year given the amount of dry powder with investors. It would be interesting to see what takeaways Indian startups take from 2022 as we wrap up another eventful year.