Deal value in India saw a compression of 33 per cent from USD 38.5 billion to USD 25.7 billion over 2021-22, as per Bain and Company’s annual India venture capital report 2023 in collaboration with the Indian Venture and Alternate Capital Association (IVCA).
The report stated that 2022 saw a recalibration in venture capital (VC) investments in India as increasing macroeconomic uncertainty and recessionary fears affected investment momentum.
The decline in funding was largely over the second half (H2) of 2022 as macro headwinds intensified in the latter part of the year.
It added that despite compression, early-stage continued to see sustained momentum buoying deal volume to 1600 plus VC deals in 2022, leading to a slight expansion in deal volume.
In 2022, India continued to outpace China for the second year in a row in terms of new unicorns created.
It added that funding to startups in non-metros grew to 18 per cent share and 9 out of 23 unicorns added in the year emerged from cities outside of the top 3 metros indicating a shift to more democratic funding geographically.
“Overall funding saw a drop in 2022—led by a drop in late-stage large deals. The ecosystem faced foundational shifts as VCs pivoted focus to unit economics and start-ups faced a challenging year with multiple regulatory challenges, lay-offs and corporate governance issues surfacing," said Arpan Sheth, Partner, Bain and Company.
Sheth added that despite the overall softening, a few areas continue to offer hope—SaaS funding remained in line with 2021 highs and early-stage deal making saw sustained momentum. Going forward, while macro headwinds will continue to impact India, 2023 may lead to the emergence of a more resilient ecosystem in India.
“Over the years, the alternative investment asset class has demonstrated remarkable resilience. While 2022 marked a year which heralded PE/VCs to adapt in the face of unprecedented challenges; it also went on to witness record fund-raising and all-time high available dry powder," commented Rajat Tandon, President, IVCA.
Tandon added that this only reinforces global investors’ confidence in India to be one of the few bright spots of growth.