Venture capital funding for startups declined by 72 per cent this year compared to last year as the turbulence in the sector made investors skittish, severely hitting late-stage fundraising. Indian new-age companies picked up $7.5 billion across all stages as of December 15 this year compared with $25 billion, according to data from Venture Intelligence. 

The funding for late and growth-stage startups slowed as private market investors became selective in their approach. The fall in funding this year is largely attributed to sluggish late-stage deals (Series D and above), which more than halved to $3.5 billion from $11.70 billion in 2022. 

The number of late-stage funding deals also fell to 56 from 122 in 2022, the data showed.  

Meanwhile, early-stage funding deals (seed and Series A rounds) slowed down. The amount invested by VCs in seed and Series A rounds this year moved up to $1.99 billion, a 65 per cent increase from $5.40 billion in 2022. The number of deals declined to almost half to 414 rounds from 871 rounds in the year-ago period. 

Growth-stage funding rounds (Series B and Series C) declined to $1.9 billion through 99 deals, compared with $6.84 billion from 230 deals in 2022. 

The average deal size also saw a dip. In late-stage deals (Series D and above) the average deal size declined i.e., in Series D, the average deal size stood at $50 million in 2023 as compared to $64 million in 2022, while Series F, the average deal size almost halved to $54 million as compared to $138 million in 2022. 

“In 2023, the venture capital scene in India underwent a recalibration, focusing on sustainable investments with total funding of about $7-10 billion. This trend reflects a shift towards more cautious and value-driven investments. Looking ahead to 2024, I’m optimistic about a resurgence in startup investments, especially for businesses with strong fundamentals. Improving global economic conditions is likely to positively impact India’s venture capital market, setting the stage for prudent yet promising investment opportunities,” said Anirudh A Damani, Director, Artha Group. 

The data also showed that though top startup hubs like Bengaluru, Delhi-NCR and Mumbai continued to lead in terms of funding, the relatively smaller centres such as Chennai, Hyderabad and Pune recorded a growth in funding. Bangaluru saw 219 funding rounds raising $3 billion in funding, while Delhi-NCR saw 117 round raising $1.8 billion. 

About a dozen founders and investors told businessline that fundraising activity will pick up in the first half of 2024, with new-age companies exploring funding channels only toward the second half. 

In terms of the most active investors, Peak XV topped the charts with 40 deals during the year. Some of its major bets were on wealth and asset management firm Neo, spacetech company Digantara, and others. 

However, this is significantly lower than the 75 cheques it wrote last year. Blume Ventures and Accel India signed 28 and 21 deals each in 2023. 

This year, a total of 569 funding rounds were raised, a 53 per cent drop from 1,224 rounds in 2022. Further, only 17 rounds exceeded the $100 million funding figure in 2023, down from 55 in the same period last year—a 69 per cent decrease. 

Focus sectors 

The ecommerce, enterprise and fintech sectors ruled the roost in 2023, raising $2.57 billion $1.65 billion and $1.2 billion, respectively. However, in line with the broader trend, this was significantly lower than last year’s numbers, when these two sectors raised $5.36 billion, $5.29 billion and $5.3 billion, respectively. 

Lenskart, PhonePe, Perfios, and Zepto are some of the top-funded companies in 2023, according to data. 

In 2023, only two unicorns were created -- Incred and Zepto as against 23 in the previous year. 

Exit strategy 

The other aspect that will be important while writing cheques moving forward will be the public market acceptability of a company, investors said. 

IPO numbers did not see a major drop this year with 18 tech companies going public in 2023 till date as compared to 19 in 2022. Ideaforge, Yatra and IKIO Lighting are some of the notable tech IPOs of 2023. 

As per Venture Intelligence data, 112 M&A deals happened in 2023 compared to 219 such deals in 2021. However, deal values for only 21 deals were announced this year, against 62 deals last year. For those deals where values were made public, 2023 recorded M&A deal values of $930 million, compared to $2.7 billion last year. 

“Reflecting on 2023, India’s tech landscape faced a wake-up call, prompting a seismic shift. The disruptions were more than mere ripples; they indicated a tidal change, sparking a collective realignment in our ecosystem. This transformation impelled a reevaluation of strategies and approaches across the board,” said Sheetal Bahl, Partner, Merak Ventures.  

“As we step into 2024, the lessons of 2023 resonate. The funding landscape bears the marks of this recalibration, showcasing a renewed dynamism. The present investment climate gleams with potential, and strategic investments in promising ventures are on the horizon. The venture capital sphere is poised for recalibration, with a focus on strategically sized investments, aligning with the evolving landscape,” Bahl added. 

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