Startup Funding Declines By 79% In Last Five Months

Funding for Indian startups has significantly declined in the first five months of 2023 compared to the same period last year, indicating a prolonged period of reduced funding opportunities. 

According to data, private equity and venture capital (PE/VC) funding for Indian startups dropped by 79 per cent to USD 3.3 billion between January and May, in contrast to the USD 15.7 billion invested during the same period in the previous year. 

The data also revealed that startups secured 247 funding rounds during this period, a significant decrease from the 613 funding rounds secured in the first five months of 2022. 

In May, investors participated in approximately 53 funding rounds, investing around USD 948 million. This is a decline compared to the USD 1.68 billion invested across 108 funding rounds in May of the previous year. The funding amount experienced a year-on-year decrease of approximately 44 per cent, while the number of deals saw an even more substantial decline, more than halving in May 2023 compared to the same month in the previous year. 

Although there was a slight increase in the funding amount from April, where approximately USD 342 million was invested in about 46 deals, the current levels still fall below those of 2022. 

Investments in growth and late-stage startups have also faced significant pressure. Between January and May 2023, startups in this stage-managed to secure USD 2.75 billion in funding across 105 deals. This is considerably lower than the five-month average of USD 8.9 billion across 189 late and growth-stage deals in 2022. 

Prashanth Prakash, the founding partner of Accel, predicts an increase in mergers and acquisitions in the coming months. He believes that funding opportunities for late-stage startups will be scarce for the next nine to ten months. This poses a major challenge as some late-stage companies may need to overhaul their business models, with a few requiring a complete reset. As a result, Prakash expects significant consolidation within the startup ecosystem in the next six months. He expressed these views during an industry event in Bengaluru on 1 June. 

During the period of January to May 2023, there were 142 early-stage deals totalling USD 549 million. This represents a decline of approximately 54 per cent compared to the five-month average of 310 deals recorded in the previous year. In terms of funding amounts, startups received over 56 per cent less funding compared to the five-month average of USD 1,255 million in 2022.