Growth Stage Funding Tanks 76% YoY In Q1 2023, Investors Caution A Further Dip

The chills of the ongoing funding winter appear to have seeped well into 2023, with growth-stage funding crashing with a thud in the first three months of 2023. 

According to Inc42’s ‘Indian Tech Startup Funding Report Q1 2023’, growth-stage funding declined 76% year-on-year (YoY) to $747 Mn in the first quarter (Q1) of 2023 from $2.9 Bn in Q1 2022. Further, the number of deals fell 56% YoY to 51 during the period under review against 116 in the year-ago quarter. 

Series A deals nearly halved to 30 in Q1 2023 against 58 in Q1 2022. However, it was the Series B deal count which witnessed a dramatic decline, falling 86% YoY to 4 from 28 in Q1 2022.

Meanwhile, the average ticket size for growth-stage startups stood at $10 Mn in the first quarter of 2023.

Despite the headwinds, fintech regained its position as the most funded growth-stage sector in Q1 2023, after a brief lull in the previous quarter. On the other hand, ecommerce continued to pip fintech and enterprisetech, clinching the highest number of deals for growth-stage startups in Q1 2023.

Download Q1 2023 Funding Report!

Overall, the numbers were not so promising as the funding raised by growth-stage fintech startups plummeted 74% YoY in the quarter under review while capital raised by growth-stage enterprisetech platforms plunged a whopping 85% YoY. Ecommerce funding also tanked 25% YoY in Q1 2023. 

On similar lines, growth-stage startups could mop up fewer deals as the deal count for growth stage enterprisetech startups declined 72% YoY in Q1 2023 while the same number of such deals for fintech startups fell 65% YoY. Deal count for growth-stage ecommerce startups fell by 56% on a yearly basis in the first three months of 2023. 

The only saving grace appeared to be startups such as insurtech platform InsuranceDekho and EV startups CHARGE+ZONE and Log9, which continued unfazed despite the inclement funding environment. 

While InsuranceDekho raised a $150 Mn Series A funding round led by Goldman Sachs Asset Management and TVS Capital Funds; EV charging platform CHARGE+ZONE’s logged in a $54 Mn Series A1 funding round. EV battery startup Log9 ‘s $40 Mn Series B round led by Amara Raja Batteries Ltd and Petronas Ventures also grabbed headlines in the quarter. 

Another Sombre Quarter

The slump has largely been the result of a volatile year so far, which has seen inflation and interest rates on an upward spiral. Complicating matters have been weak global cues, a tech rout and other macroeconomic factors. 

The biggest issue, however, appeared to be big foreign investors who resisted from splurging on growth-stage startups. Traditionally, marquee VC firms such as Sequoia Capital and Tiger Global bet big on Indian growth-stage startups, but their absence, for the most part this quarter, appears to have hit the ecosystem. 

Download Q1 2023 Funding Report!

As of now, it looks like the entire year is headed for a washout for Indian growth-stage startups. According to Inc42’s Top Indian Startup Investors Ranking Survey, 84% of Indian venture capitalist (VC) firms believe that it will be very difficult for growth-stage startups to raise capital this year.

Further, industry experts believe that the focus of investors will be on the profitability of Indian startups.

Overall, Indian startups raised just $3 Bn in funding in Q1 2023, a sharp decline of 75% YoY from $12 Bn raised during the same period last year. The number of deals also tanked 58% YoY to 213 during the quarter under review from 506 in Q1 2022. 

Download Q1 2023 Funding Report!