Funding Winter: Growth-Stage Startups Hit Hard, 37.5% MoM Decline In Funds Raised In May

Amid the Russia-Ukraine war, and rising inflation and interest rates, the whispers of a funding winter began in the startup ecosystem in early-May 2022. So, when venture capital and private equity firms started painting survival strategies for their portfolio companies, it was a confirmation of something which many already knew.

Early-stage startup accelerator Y Combinator told its startups across the world that “the safe move is to plan for the worst”.

In India, the funding raised by startups has been on a month-on-month (MoM) decline since the April month of CY22. The Indian startups raised a combined $16.7 Bn in 2022 till May.

As per Inc42’s funding data for May 2022, Indian startups raised $1.6 Bn across 117 deals, a 53% decline month-on-month (MoM) from April’s fundraise of $3.4 Bn. 

Amid the decrease in the funding raised, cash crunch and 9K+ layoffs, seed-stage startups outperformed others, with funding growing 4X year-on-year (YoY) in May. However, growth stage startups were not so lucky.

Out of the $1.6 Bn raised in May 2022, growth stage startups bagged $500 Mn across 24 deals. 

As opposed to April 2022, when growth stage startups raised $800 Mn, startups raising funds in rounds Series A through C in May 2022 fell by 37.5%.

The top 5 rounds in the growth stage startup ecosystem of India were agritech Absolute Foods and ecommerce Fashinza’s $100 Mn rounds each, healthtech Redcliffe Lifetech’s $61 Mn round, foodtech rollups brand Curefoods’ $50 Mn round and healthtech startup toothsi’s $40 Mn round.

Average Ticket Size For Growth Stage Startups Below May 2021 

After an action-packed 2021, which saw a surge in startup valuations and a funding boom, growth-stage startups are under pressure in 2022. 

The over-the-top valuations and reckless spending have resulted in a major cash crunch and layoffs in the startup ecosystem. Amid all these, as many as eight startups have shelved their plans to list on stock exchanges this year.

A look at funding data for 2021 shows that the funding raised by growth stage startups in May 2022 was almost the same as $510 Mn in May 2021. Besides, the average ticket size stood at $20 Mn in May this year as against $27 Mn in the same month a year ago. 

The month of May also saw the lowest amount in overall funding during the first five months of 2021, similar to what is being witnessed this year. 

Not All Is Lost

As the Covid-19 pandemic stuck in 2020, there was uncertainty all around the world with businesses unsure of what was to come ahead. However, the Indian startup ecosystem didn’t only survive the pandemic but also thrived and flourished during that time.

In the same way, even as the funding winter looms, not everything is lost. The funding raised by the Indian startups in the first five months of 2022 and the number of deals during this period is still higher compared to the corresponding periods in 2020 and 2021.

Even as everyone talks about the funding winter, it is no secret that bull and bear cycles are a part of the market, and one follows the other. While the times are tough for growth stage startups, the easiest way out for them is to go back to the drawing board, chalk out business fundamentals, streamline operations and focus more on unit economics and sustainable scaling.

While growth stage startups will have to bear the pain for some time, those who survive this will emerge much stronger.