Investments In Indian Start-Ups In 1H23 Falls To Lowest In Four Years - PwC India

Investments in Indian start-ups declined nearly 36% year-on-year to $3.8 billion in the first half of 2023, the lowest in the last four years, according to PwC India.

In value terms, growth- and late-stage funding deals accounted for 84% of the funding activity in the first half of 2023, PwC India said in a statement. A total of 298 deals were witnessed during the period, it added.

The consulting firm said FinTech, software-as-a-service (SaaS) and direct-to-consumer (D2C) continued to be the most funded sectors in 1H23.

During the last few quarters, despite challenging funding market conditions, investors have shown strong support for their portfolio companies by doubling down on their investments in companies that demonstrated positive growth, it noted.

“A funding winter is just a season in a start-up’s journey. There is a slowdown in start-up funding despite significant untapped capital reserves held by venture capitalists (VCs),” said Amit Nawka, partner - deals & india startups leader at PwC India.

Key snapshot from PwC India’s start-up perspectives for 1H23 are:

STAGES OF FUNDING

• Early-stage deals accounted for 57% of the total funding in 1H23 (in volume terms). In value terms, early-stage deals contributed to about 16% of the total funding during the period, but was at its lowest in 1H23 as compared to the previous two years.

• Growth- and late-stage funding deals accounted for 84% of the funding activity in 1H23 (in value terms). These represented 43% of the total count of deals in this period.

• The average ticket size in growth-stage deals was $19 million and late-stage deals was $52 million during 1H23.

M&A TRANSACTIONS

• While VC funding declined in 1H23, M&A transactions remained the same when compared to 2H22, and 80 M&A deals involving start-ups were executed in 1H23.

• Of these 80 M&A deals, 80% were domestic transactions and the rest were cross-border transactions.

• Similar to the VC funding activity, SaaS (23), FinTech (11) and e- commerce and D2C (10) continue to witness the highest number of M&A transactions during 1H23.

SECTOR-WISE INVESTMENT

• SaaS, D2C, FinTech, e-commerce business-to-business (B2B) and Logi and AutoTech continue to be the top five invested sectors based on the funding received in the first half of the year. These contribute to approximately 89% of the total funding received in 1H23 in value terms.

• In the same period, the D2C and online gaming sectors each saw investments increase by almost 3x that of 2H22. In the FoodTech sector, investments increased by four times in 1H23 compared to 2H22 in value terms.

CITY-WISE FUNDING

• Bengaluru, National Capital Region (NCR) and Mumbai continue to be the key start-up cities in India, representing around 83% of the total start-up funding activity in 1H23.

• Decline in funding activity was noted across all cities in 1H23 barring Chennai, which witnessed higher funding in the SaaS space.

Nawka said active VC firms in India have secured new funds in the past year and the pace of investments is likely to pick up in the next few months.

He added there has been an increase in the due diligence being carried out by investors before making investments, both in terms of detailing as well as coverage -- from typical finance and legal, to areas like technology, HR and business processes -- to ensure that the startups have a robust corporate governance framework.

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