- Even as funding activity slowed in 2022, inflows at early-stage startups rose 12%.
- Funding to nearly all industries declined, with the exception of SaaS and media and entertainment.
- Funds received through e-commerce (B2C) fell by as much as 71%. E-commerce (B2B) also saw a 54% drop in funds received.
- Globally, VCs are sitting on dry powder to the tune of $590 billion.
According to a PwC India report, Startup Deals Tracker-CY22, funds raised by Indian startups fell by 33% to $23.6 billion in 2022 from $35.2 billion a year earlier.
The number of startups raising money fell slightly 8% to 1,021 and the average ticket size of deals fell from $32 million a year earlier to $23 million.
Investors also seem to have shifted their focus to early-stage start-ups, where inflows increased by nearly 12%.
“Despite the slowdown in funding, some areas, such as SaaS and early stage financing, have remained optimistic. With a significant dry powder waiting to be invested, it seems likely that the funding scenario will begin to normalize after two to three quarters. Until then, however, many startups are using this time to sharpen operating models and optimize their cash runway by postponing discretionary spending and investments,” said Amit Nawka, partner-deals & India startups leader, PwC India.
The influx into late-stage startups witnessed a 52% drop, according to the report which added that 21 startups achieved unicorn status during the year.
SaaS remains the top choice for investors
Funding to nearly all industries declined, with the exception of SaaS and media and entertainment. SaaS, which accounted for a quarter of total financing activity, saw a 20% increase in financing value. As 14 SaaS companies raised more than $100 million during the year, it also increased the average ticket size of deals in this segment to $4 million.
The Fintech sector contributed to 20% of the total inflow of funds in 2022. But compared to the previous year, financing activity was down 40%.
The sectors that saw the sharpest fall in funds is e-commerce (B2C), where fund inflows fell by a whopping 71%. E-commerce (B2B) also saw a 54% drop in funds received. Funds for direct-to-consumer (D2C) startups fell 26% despite four companies raising more than $100 million each during CY22.
When brick-and-mortar schools and colleges reopened, edtech, which rose to prominence during the pandemic, lost its luster. Inflow into edtech startups fell by 58% in 2022.
In addition, the number of M&A deals involving startups also fell by 17% in 2022, to 246 deals. “Ecommerce and D2C (61) and SaaS (60) witnessed the highest number of M&A transactions in 2022. The year witnessed 199 domestic, 21 inbound and 26 outbound deals,” the report said.
VCs are pulling back from the markets
The decline in fund activity is an indication of caution among investors as they remain sitting on dry powder for $590 billion globally. Dry powder is unallocated money that a PE or VC has on hand. Much of this dry powder consisted of resources committed in 2022 and 2021.
“The dry powder buildup is due to a withdrawal from the market by venture capital funds that are picky about their investments. The focus is on companies with strong unit economies and a path to profitability,” the report said.
PwC also adds that the amount of dry power VCs sit on shows that the market can look forward to strong investment cycles.
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