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.

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. 

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. 

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