Winter Wasteland: Seed Stage Funding Declines 81% YoY In Q1 2023

Despite a rebound in seed funding activity in the fourth quarter (Q4) of 2022 compared to the previous two consecutive quarters (Q3 and Q2), the year 2023 has been painful for such startups so far.

Denying any positivity to the world’s third-largest startup ecosystem, the first quarter (Q1) of 2023 endured a massive 81% YoY (year-on-year) and 73% QoQ (quarter-on-quarter) hit in terms of seed funding. Further, the number of deals fell 58% YoY and 34% QoQ in Q1 2023.

According to Inc42’s ‘Indian Tech Startup Funding Report Q1 2023’, the country’s seed-stage startups could only mop up $180 Mn in 102 funding deals in the first quarter (Q1) of 2023 versus $961 Mn raised across 241 deals in the year-ago quarter (Q1 2022). The amount raised in the first three months of the year is the lowest in any quarter since the start of 2021.

Although seed-stage funding took a hit in Q2 and Q3 2022, with seed startups raising $459 Mn and $356 Mn, respectively, after a watershed in Q1 2022, investor sentiment improved for seed funding in Q4 2022, hinting at a strong start to 2023.

However, even though the country’s seed-stage startups raised $667 Mn across 155 deals in Q4 2022, Bengaluru-based Table Space alone accounted for $300 Mn in one of the biggest seed rounds of the quarter, leaving others with 55% of the remaining amount.  

Download Q1 2023 Funding Report!

Top Seed Funding Bets In Q1 2023

Enterprisetech, fintech and ecommerce remained the top three sectors that lured investors the most and made them infuse a total of $111 Mn in 51 deals in the first three months of 2023.

While enterprisetech startups saw 22 funding deals to the tune of $34 Mn in Q1 2023, fintech startups led the charts in terms of amount raised, at $58 Mn in nine deals. Further, ecommerce startups lapped up $19 Mn in 20 deals.

In the fintech space, InsuranceDekho alone raised $36.5 Mn, which developed into a Series A round, taking the total fundraising to $150 Mn. Excluding InsuranceDekho, fintech’s total funding comes down to eight deals worth $21.5 Mn.

Enterprisetech, too, had outliers of its own, as Scrut Automation and Chronicles raised $7.5 Mn each, along with 10 other funding rounds with a value of $1 Mn and above.

Taking Clues From 2022

The investor sentiment towards seed stage funding was very positive in 2022, as VCs skewed towards making smaller bets in the face of an economic downturn.

This was reflected in the funding trends throughout the year; as late and growth-stage funding declined, allowing seed-stage startups to get drenched in optimism.

Amid the fears of an impending recession, it seems that micro VC funds focussed on pre-seed and seed-stage startups are becoming more popular.

Last month, pi Ventures raised INR 22 Cr to invest in early-stage startups, while in February, Grayscale Ventures announced the first close of its fund at $20 Mn. 

In January, Zero To One set up an INR 300 Cr fund, while Piper Serica Advisors raised another INR 75 Cr to back early-stage startups in India.

Apart from this, late last year, SphitiCap launched one of the biggest funds, at $500 Mn, to back seed-stage startups.

With VCs steering their interest towards making smaller bets, it seems that the current downturn in seed funding might be a temporary one.

Download Q1 2023 Funding Report!