Fintech remained the hottest area of investment in India in the second quarter, in addition to e-commerce, social commerce and gaming, according to Q2-2022 edition of Venture Pulse—a quarterly report, published by KPMG Private Enterprise, that analyses key VC deals and trends globally.

Further, agritech startups has also attracted a growing number of deals in Q2-2022, with most of these deals occurring at very early deal stages. The report added that fintech is expected to remain a strong area of investment in many jurisdictions worldwide, in addition to supply chain and logistics, cybersecurity and alternative energy. 

Effect of inflation, interest rates

The investor interest in these sectors is despite global VC investment dropping to $120.2 billion across 8,420 deals in Q2-2022. The second quarter was the most subdued in Asia, dropping to an eight-quarter low of $24.5 billion across 2,206 deals. Given the rising inflation and interest rates, consumer-focused companies are expected to lose some luster with VC investors favouring B2B solutions and investments. 

While VC investment in India may be muted over the next quarter or two due to the global reduction in money supply and other factors, the country is expected to remain quite attractive over the medium to longer term due to its relatively positive macro-economic environment and market demographics

Start-ups taking proactive steps

Commenting on the India findings, Nitish Poddar, Partner and National Leader, Private Equity, KPMG in India, says, “In India, the funding hasn’t dried up yet, but many start-ups are taking proactive steps to reduce their cash burn given the increase in federal interest rates, the geo-political crisis and other evolving issues. Because they anticipate challenges raising funding and expect investors will increasingly ask for paths to profitability and better cash conservation, they’re doing what they can to improve their operating position now so they can potentially avoid drastic changes later.”  

Global uncertainty looms large

The report added that in Q3-2022, the global uncertainty plaguing the world is expected to continue, keeping the IPO window shut and VC investment soft. Down rounds could become more common as companies are forced to raise funding rounds despite the challenging fundraising environment.

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