Funding into Indian startups declines by 75% in Q1 2023

The funding into the Indian startup ecosystem dropped by 75% in the first quarter of this year on account of rising inflation and interest rates, according to Geo Quarterly Report: India Tech - Q1 2023.

The country’s startups raised a total of $2.8 billion in January-March 2023 compared to $11.9 billion secured in the same period in the previous year, the report by market intelligence platform Tracxn noted.

India, which is the second-most funded geography after the US in Q1 2023, witnessed a 63% decline in the number of funding deals in the first quarter of 2023 compared to the year-ago period.

The report further stated that the funding volumes have contracted owing to the reduction in late-stage funding, which has plunged by 79% to $1.8 billion in the March-ended quarter from Q1 2022. Moreover, funding in early-stage rounds dropped 68% to $844 million in Q1 2023. 

Despite the year-on-year decline in funding, the month-on-month comparison appears more promising as the Indian startup ecosystem experienced a growth of 54% to $1.2 billion in March 2023—up from $777 million in February 2023, the report noted.

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The leading sectors in terms of funding in the first quarter of 2023 were fintech, retail and enterprise applications. However, the fintech segment witnessed a 51% drop in funding in Q1 2023 compared to Q1 2022. 

The investments in the sector were led by digital payments and financial services firm PhonePe, which raised a total of $650 million in multiple Series D rounds in the first quarter of this year, valuing the company at $12 billion.

The March-ended quarter did not lead to the creation of any new Indian unicorns, while the same time period last year saw 14 unicorns emerge.

In terms of exits, the scenario has remained stable for acquisitions, with 46 acquisitions in the first quarter. In IPOs, three companies—Robu Labs, Mars Capital, and Homesfy—went public in Q1 2023. 

The report also highlighted that Bengaluru was the leading city in terms of the total funds raised in the first quarter followed by Delhi and Mumbai. The top investors in Q1 2023 were 100X.VC, CIE at IIIT-H, and Accel.

While there was a significant drop in funding in the March-ended quarter, the first week of April saw a sharp rise in investment inflow in the Indian startup ecosystem. Indian startups secured $525 million in the first week.