Indian startups feel the chill as VC investments plunge: Is it just winter or a new ice age?

By Our Reporter
Representational Photo by Getty Images. Licensed under the Unsplash+ License

The Indian venture capital scene has hit a chilly period this year, according to new data from analytics firm GlobalData. In a startling revelation, venture capital (VC) investments in India for Q1-Q3 2023 have nosedived by a staggering 70.4% year-on-year to $5.5 billion. Deal volume also sank, but not as dramatically, experiencing a decline of 42.3% from last year.

In stark contrast, Q1-Q3 2022 was something of a golden era for Indian startups, witnessing a total of 1,405 VC deals worth an impressive $18.5 billion. Fast forward a year, and the country’s entrepreneurs are scraping by with just 811 deals. Aurojyoti Bose, Lead Analyst at GlobalData, put it bluntly: “The total funding value during Q1-Q3 2023 was not even at one-third of Q1-Q3 2022’s level.”

So what’s going on? What’s driving investors away? There’s more than one reason behind this grim phenomenon. The global impact of the Russia-Ukraine conflict and broader macroeconomic challenges have undoubtedly played a part. However, Bose also highlights a significant issue closer to home: sky-high startup valuations. This has given pause to investors, potentially heralding what Bose ominously calls a “prolonged funding winter.”

Yet, despite this disheartening trend, India still holds its own on the international stage. It ranks second only to China in the Asia-Pacific region and among the top five global markets for VC funding activity. This isn’t small fry; it signifies that while the volume and value of VC deals may have declined, India’s fundamental attractiveness as an investment destination endures.

India’s contribution to the global VC pie is not insignificant either. The country accounted for 5.3% of the total number of VC deals announced globally and 3% of their total value during Q1-Q3 2023. Notable mentions in the VC landscape this year include hefty investments in firms like PhysicsWallah ($250 million), Perfios Software Solutions ($229 million), PhonePe ($200 million), and Zepto ($200 million).

Now, if you’re thinking that this VC cooling is a strictly Indian affair, think again. Our Chinese counterparts are also witnessing a pullback in VC investments, albeit not as severe as India’s. According to the same GlobalData report, China saw a 25.6% YoY decline in disclosed funding value to $32.2 billion in Q1-Q3 2023. The report also cited drops in VC funding deal volume across other key markets like the US and the UK, suggesting a more pervasive, global hesitance among investors.

So is this a temporary freeze or the beginning of a new ice age for Indian startups? It’s tough to say. But what’s certain is that if startups were previously basking in an Indian summer of abundant funding, they’ll now need to find a way to keep warm through a decidedly frosty spell. As the calendar marches on and Q4 2023 looms, the question remains: Will the heat return, or is it time to bundle up for a long, cold winter?

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