State of startup ecosystem in August: Stretched

Despite a monthly jump of 66.1% in startup funding in August, the fear of a funding winter in 2022 is here to stay as there was 67.9% lower fundraising compared to August 2021.
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The Indian startup ecosystem is facing testing times, as funding activity has been on a steady decline in 2022, after a heady 2021 which saw a fundraise of $32 billion across 1,406 deals.

Following a gloomy July, Indian startups raised $1.08 billion across 135 deals during August. According to YourStory Research, compared to July’s fundraise of $652.7 million over 116 deals, the latest month gone by saw a 66.1% monthly increase in fundraising.

However, the celebrations are short-lived because the relatively better numbers in August this year were 67.9% lower than $3.38 billion raised over 141 deals in August last year. This gives us a stronger reason to reiterate on the previous analysis of startup funding for the first half of 2022, where we had warned that the coming quarters would be an acid test for the ecosystem.

Also, August, with 5.8% share of $18.8 billion raised during January-August 2022, has displaced May ($1.92 billion; 139 deals) as the second lowest activity month in 2022, where the latest month has recorded 43.4% lesser funding compared to May, which accounted for 10.2% of the cumulative fundraise value between January to August 2022.

As for 2022, January was the best month so far when $3.9 billion were raised. In comparison, the August numbers recorded an absolute decline of 71.9%, with 48 funding deals lesser in comparison of January’s 183.

While the washout seen in startup funding during July 2022 was felt across all the funding stages, the relative recovery in August is evenly felt across all stages except early-stage, which posted 11.6% improvement, with $252.5 million being raised in August over 104 deals in comparison to $226.4 million raised across 105 deals in July.

When seen from the lens of funding round types, while debt funding and undisclosed deals grew 4.7 times and 2.7 times each on a month-on-month (MoM) basis, Pre-Series A, Series A, and Series C grew by an absolute 21.5%, 29.6%, and 15.6% compared to July. While Series D grew by 75% in August, there was a 21.3% decline in total value of funding in Series B in the month gone by.

In terms of the top sectors, out of the $18.8 billion raised by startups across 1,142 deals, the top 15 sectors raised nearly $15.3 billion—accounting for 81.2% of the total fund raise—across 797 deals which works out to 69.8% of the deal volume.

The fintech and financial services sector ($4.05 billion: 211 deals) accounted for 21.5% of the total fundraise during the eight months of 2022, while edtech and educational services ($1.88 billion: 77 deals) followed with 10% share of the total, leaving ecommerce ($1.10 billion: 48 deal) with 5.8% share at number 3.

Beginning with August, YourStory Research will also keep a tab on the merger and acquisition activities unfolding in the startup ecosystem, as consolidation is bound to have increasing occurrence in an ecosystem where funding is not very easy to come by.

Click here to download the State of India's Startup Ecosystem - August 2022

Edited by Megha Reddy

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