Start-up funding in India hits 2-year low, shows PwC report: Look at best and worst performing sectors

By: Yash Gupte

According to the research, startup funding in India hit a two-year low in Q3 of CY22 at $2.7 billion across 205 deals, indicating that the global funding slowdown is still present.

The startup funding in India has hit a two-year low at $2.7 billion in the third quarter of 2022 amid a global economic slowdown, a report published by PwC India has claimed. The report, titled, ‘Start-up perspectives: Indian start-up deals tracker Q3 CY22', has noted that fundings have been affected due to a variety of reasons including high inflationary trends in developed economies like USA and UK and the volatility in oil prices and disruption in supply chains due to the Russia-Ukraine conflict. Considering the decline in funding to start-ups, India Tracker takes a look at the funding to start-ups across major sectors.

Just two startups in India achieved unicorn status in the period of July to September 2022, following a global trend in the fall in the number of new unicorns (private firms exceeding the value of $1 billion) this last quarter. Twenty unicorns were created during the quarter under review globally, and 45% of them came from the Software as a service (SaaS) industry. This quarter, no new decacorns (private firms exceeding the value of $10 billion) were added. According to the research, startup funding in India hit a two-year low in Q3 of CY22 at $2.7 billion across 205 deals, indicating that the global funding slowdown is still present. Apart from EdTech and e-commerce B2B, funding activity declined across all sectors in Q3 of CY22.

The chart below shows the ups and downs in funding to the start-ups in India.

Source: PwC

The highest funding to the start-ups in India was observed in the Q3 of the CY21 as the start-ups in India had received funding worth $11.4 billion. The streak of regular and high funding was maintained till Q1 of CY22 as the start-ups received funding worth $11.2 billion. This trend did not continue as a fall was witnessed in the funding in the Q2 of the CY22 as the funding to the start-ups decreased to $6.6 billion. The scenario became even worse as the Q3 of the current year witnessed a funding of just $2.7 billion which is lowest in two years as the Q3 of CY20 had recorded the start-up funding at $2.8 billion.

Source: PwC

Among all the sectors, the only sectors performing positively in the Q3 of CY22 were the EdTech, Health Tech and E-Commerce B2B. EdTech and Health Tech were the top and best performing sectors as they managed to pull maximum investment while on the other hand, FinTech, SaaS, Media & Entertainment, Logi & Auto Tech and E-Commerce B2C were the worst performing sectors. The SaaS reported a massive drop in funding from $1600 million in Q2 to just $469 million in Q3. The FinTech also reported a gigantic drop in the funding as it tumbled from $1585 in Q2 to $797 in Q3. The amount of capital raised for FinTech start-ups in Q3 CY22 decreased by 60% when compared to Q2 CY22. Only five companies—OneCard, EarlySalary, Servify, Fi.money, and Jaikisan raised more than USD 50 million in the third quarter of CY22. Health Tech was the best performing sector while the SaaS was the worst performing sector in Q3 CY22.

The main draws of doing business abroad for start-ups are a friendlier business climate, simpler access to less expensive finance and talent, as well as an openness to developing industries like crypto, FinTech, and Web 3. According to Henley & Partners' ranking, Singapore and the United Arab Emirates are currently the top destinations for entrepreneurs. As a result of investors' preference for these nations, start-up investment in India has decreased. Also, the tight tax regulations in India and the exact opposite in countries like Singapore and UAE are pulling the investors away from India. Many investors have marked that the legal jurisdiction in foreign countries are much friendlier than India.