Funding into fintech startups plunges 67% in first half of 2023

Indian startups operating in the financial technology (fintech) space raised a total of $1.4 billion in H1 2023, a massive drop of 67% from $4.3 billion raised in the same period last year, even as the country sustained its position as the third-highest funded fintech industry after the US and UK and received the highest funding compared with any other sector in the country.

At the same time, the funds raised in the first six months of 2023 by fintech startups were down only 6% from $1.5 billion in H2 2022, as per a report by market intelligence platform Tracxn. 

The decline in funding is largely due to the downward trend in early-stage investments, which plunged 81% and 68% from H1 2022 and H2 2022, respectively.

The report highlighted the changing investor focus on profitable companies and business models, along with the current macroeconomic situation accelerated by inflation behind the funding sentiment. 

Seed-stage funding too saw a decrease of 38% and 70% from H2 2022 and H1 2022, respectively, while late-funding grew 66% from H2 2022 but fell 62% from the same period last year. 

Looking at the quarter-wise data, the fintech startup ecosystem raised capital of $1.18 billion in Q1, contributing to more than 84% of the funds raised in the first half of 2023. Meanwhile, the second quarter of the financial year was the least funded quarter since 2021.

Sectors, investors in spotlight 

Payment, alternative lending, and internet-first insurance platforms were the top-performing segments in the fintech space in H1 2023. 

Funding in the payments segment has increased by 3X compared to the previous period and accounted for 55% of the total fundraise.

The period witnessed seven $100 million+ rounds, including that of PhonePe, InsuranceDekho, Mintifi, and KreditBee. 

No new unicorns emerged during this period, compared to four in H1 2022. Further, there was a slight uptick in the number of acquisitions, which rose to 19 in H1 2023 from 13 in the second half of 2022 but was still lower than 26 in H1 2022.

Peak XV Partners, AngelList, and Y Combinator emerged as the top investors in the space. Among these, IPV, Blume and Titan Capital were the top investors in seed-stage rounds, while Elevar Equity, TPG, and Peak XV Partners were the top investors in early-stage rounds. OP Finnfund Global Impact Fund I and Avataar Ventures were the top investors in late-stage rounds.

Among cities, Bengaluru raised $949 million in H1 2023, 2.5X higher than the next two cities on the list—Mumbai ($218 million) and Jaipur ($150 million).