Funding woes haunt Indian startups

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Led by the edtech sector, Indian startups have laid off more than 16,000 employees to date, and the number is only growing…reports Asian Lite News

As the funding winter deepens amid growing layoffs, India saw a massive 35 per cent drop in funding this year, from $37.2 billion in 2021 to $24.7 billion (till November in 2022) and edtech startups saw a significant 39 per cent drop compared to the same period last year, a report showed on Thursday.

The significant drop in funding is attributed to a decline in late-stage investments, which fell by 45 per cent from $29.3 billion in January-November 2021 to $16.1 billion for the same period this year, according to data provided by Tracxn, a leading global market intelligence platform.

Seed stage rounds also experienced a contraction and dropped by 38 per cent as compared to the previous year.

The report said that 22 startups entered the unicorn club in the reported period, as compared to 46 in the previous year.

The number of big ticket ($100 million and above) funding rounds dropped by 35 per cent to 55 as compared to 85 in the reported period.

The number of funding rounds saw a drop of 30 per cent, from 2,647 last year to 1,841 this year, the report said.

BYJU’s raised $1.2 billion in 2 such more than $100 million rounds, followed by VerSe and Swiggy, raising $805 million and $700 million, respectively.

Earlier this week, foodtech platform HealthKart raised $135 million in a funding round led by Temasek, with participation from A91 Partners and Kae Capital, somewhat breaking the worst funding cycle.

“The funding winter, which began in Q4 of 2021, will persist in 2023 as well. In order to survive the drought, startups are taking unit economics more seriously, which has been illustrated through the series of mass layoffs that have occurred this year,” said Neha Singh, Co-Founder, Tracxn.

Led by the edtech sector, Indian startups have laid off more than 16,000 employees to date, and the number is only growing.

Singh said: “Although we are currently experiencing a slump, the situation is prompting startups to establish clearer and more sustainable paths to growth, as investors’ evaluation metrics begin to emphasise good profitability over growth at all costs.”

Graph. (File Photo: IANS)

This year saw enterprise applications, fintech and retail emerge as the top performing sectors in terms of funding.

However, fintech and retail were not adverse to the effects of the funding slowdown and saw a drop in funding — 57 per cent and 41 per cent, respectively — compared to the same period last year.

The disruption to the fintech sector has been brought on by an RBI policy that prohibits non-bank financial institutions (NBFIs) from loading their prepaid instruments using credit lines and the ruling impacted the business model of companies like Slice and Uni Cards.

Furthermore, with crypto experiencing major volatility in asset prices this year, crypto exchanges across the globe as well as in India are facing operational difficulties.

Bengaluru led the maximum total funding raised, the most active investors of the year being LetsVenture, AngelList and Y Combinator.

Meanwhile, the number of unicorns (with the $1 billion valuation and above) in India has dropped to 85 from more than 100 just a couple of months ago, as most startups have shed a significant share of their valuations while investors stay back amid the prevailing global economic turmoil.

According to data compiled by Finbold, the US has the highest number of unicorns at 704 while China comes a distant second with 243 unicorns (as of November this year).

Despite the general market conditions, several regions are leading in the number of unicorns or private companies valued at least $1 billion.

“The United Kingdom ranks fourth with 56, while Germany ranks fifth with 36 unicorns. Indeed, the US has at least double the number of unicorns compared to both China and India combined,” according to the report.

In May this year, India welcomed its 100th unicorn, which was Bengaluru-based neobank platform Open that raised fresh funds as part of its Series D round, taking its valuation to $1 billion.

Indian startups raised more than $42 billion across 1,583 deals in 2021 and the country say 42 unicorns last year, taking the number to 86.

In the first half of 2022, India added 14 new unicorns, according to the Hurun Global Unicorn Index 2022, as the funding winter hit the startup ecosystem which has only gone worse with thousands of employees being asked to go.

The startup ecosystem’s funding winter could last another 12 to 18 months.

Only two startups in India, Shiprocket and OneCard, attained unicorn status (valuation $1 billion and above) in the July-September period, mirroring a global trend in decline in the number of new unicorns, a PwC India report showed.

According to the Finbold report, Elon Musk’s space company SpaceX ranks top in the US with a valuation of $127 billion, while payment firm Stripe ranks second at $95 billion. Instacart ranks third, valued at $39 billion, followed by Databrick’s $38 billion valuation. Meanwhile, gaming company Epic Games ranks fifth at $31.5 billion.

“The US dominance over China can be linked to the Asian country’s stringent laws on the private sector. With a robust private sector led by the tech industry, the government moved to curtail the powers of such entities. In this case, there is a widespread fear of companies accelerating their growth, with venture capitalists remaining sceptical,” the report mentioned.

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