Fledgling start-ups dodge ‘funding winter’

Early-stage start-ups and seed-stage start-ups that sought to raise funds for the first time have withstood the ‘funding winter’.

Though the funding among start-ups has witnessed a drop last year, the fall was primarily confined to the big-ticket investments that generally go into late-stage funding, with fledgling start-ups continuing to be an attractive proposition for investors.

The total funding into early-stage start-ups went up to $5.9 billion in 2022 as against $4.4 billion the year before. The number of start-ups in this category too has gone up significantly to 419 from 297 during the period.

As many as 1,018 seed-stage start-ups had raised $1.2 billlion in 2022 as against 939 start-ups raising $0.9 billion in the year before.

BluSpphire, a cybersecurity start-up based in Hyderabad, stands as an example. The five-year-old start-up never raised money in its journey till raised $9.2 million in Series-A round in October 2022, when the funding winter discussion was at its peak.

“It is not that money has disappeared. Only, investors have become a little bit more cautious. We have been a bootstrapped start-up. If you eat what you kill, you will be more prudent,” Kiran Vangaveti, Founder-CEO of BluSapphire, said, explaining how his start-up could withstand the unfavourable investment conditions.

While investments under $100 million have seen an increase in 2022 over the previous year, the funding deals over the $100-million mark fell, when the real ‘funding winter’ happened.

Choosy investors

“It (funding winter) is not as bad as it was reported. There is interest. Investors are getting a little more choosy — picking and choosing what they want. They are asking tough questions,” M Srinivasa Rao, Chief Executive Officer of start-up ecosystem player T-Hub, told businessline.

The late-stage investments (with a ticket size of $100 million or more) have taken the heaviest blow with a funding drop of 40 per cent.

The investments in this bracket fell to $ 11.1 billion in 2022 as against $18.7 billion in the previous year. 

Reasons for slowdown

The reason for slowdown in late-stage was a drop in mega-rounds and median deal size, which fell by about 29 per cent because of the unfavourable conditions.

“The change in valuations for technology companies in the public markets also affected the private markets,” a recent Nasscom report on the state of start-up ecosystems in the country.

“Start-ups have had a harder time demonstrating their business metrics to justify the valuations in follow-on rounds, which has slowed down the pace of deals,” it said.

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