Indian start-ups raised $2.8 billion in funding in the first quarter of 2023, which is 75 per cent lower compared to the same period in the previous year $11.9 billion, according to a report by Tracxn.
The drop in funding can be attributed to rising inflation and interest rates impacting investments significantly. Furthermore, funding volumes have been contracting due to the reduction in late-stage funding, which has declined by 79 per cent in Q1’23 ($1.8 billion) compared to Q1’22, said the report.
Early-stage rounds in Q1 2023 saw funding of $844 million with a drop of 4 per cent compared to Q4 2022 but a drop of 68 per cent compared to Q1 2022. Moreover, seed funding rounds in Q1 2023 saw funding of $153 million, a 16 per cent drop from Q4 2022.
Although funding has decreased year-on-year, the month-over-month comparison is more promising as Indian start-ups saw a significant uptick of 54 per cent from $777 million in February 2023 to $1.2 billion in March 2023, said the report.
This quarter has witnessed 9 over $100 million funding rounds with companies like PhonePe, Lenskart, Mintify, Insurance Dekho, FreshtoHome foods, TI Clean Mobility, and KreditBee sourcing big-ticket deals. PhonePe has raised a total of $650 million in multiple Series D rounds in Q1 2023, valuing the company at $12 billion. While Lenskart raised $500 million in a Series J round led by a wholly-owned subsidiary of Abu Dhabi Investment Authority (ADIA) at a valuation of $4.5 billion.
The leading sectors in terms of funding this quarter were fintech, retail, and enterprise applications. The fintech segment witnessed a funding growth of 150 per cent compared to Q4 of 2022; however, this is a drop of 51 per cent compared to Q1 2022.
The quarter did not lead to the creation of any new Indian unicorns, while Q1’22 saw 14 unicorns emerge. In terms of exits, the scenario has remained stable for acquisitions QoQ as 46 acquisitions took place compared to 43 in Q4 ‘22.