On the auspicious day of Dhanteras, the Indian Fintech firm InCred has achieved a valuation of over $1 billion. It accomplished this milestone after securing Rs. 500 crore from a clutch of PE funds, making it the second unicorn in 2023 after Zepto.

Diwali Delight: 'Fundteras' Shines for Indian Startups

The first day that marks the festival of Diwali in most of India, Dhanteras, also known as Dhanatrayodashi, is looking quite remarkable for Indian Startups compared to most of the world. On Diwali day, when the Stock Market begins the new year with Mahurat Trading, the TICE Funding Index Report wishes a very happy 'Fundteras,' as we call it. As Dhanteras celebrates prosperity in terms of health and wealth, here we will explore the prosperity of Indian Startups in the year 2023.

Exit Stability Amid Funding Challenges: Q1 2023 Acquisitions

In the first quarter of 2023, Indian startups faced a substantial funding challenge, as they managed to secure a total of $2.8 billion in investment. This marked a stark 75% decrease when compared to the same period in the previous year, where funding had reached a robust $11.9 billion. The root causes of this funding downturn were attributed to rising inflation and interest rates, both of which have significantly impacted investments. The situation has exacerbated what industry experts are referring to as a "funding winter," as highlighted in a recent report released on Monday.

One striking statistic from the report by Tracxn, a prominent global market intelligence platform, is the absence of any new unicorns created in the Indian startup landscape during the January-March period. In stark contrast, the first quarter of 2022 saw the emergence of 14 unicorns. This signifies a marked decline in the creation of billion-dollar companies in the Indian startup ecosystem.

The contraction in funding volumes primarily stems from a significant reduction in late-stage funding, which plummeted by a staggering 79% in the first quarter of 2023, amounting to just $1.8 billion, in contrast to Q1 2022.

Early-stage funding rounds managed to secure $844 million, showcasing a decline of 4% compared to Q4 2022 and a more significant 68% drop when juxtaposed with Q1 2022 figures.

Seed funding rounds also experienced a dip, securing $153 million in Q1 2023, marking a 16% decrease from Q4 2022. Despite the year-on-year funding decrease, the month-on-month comparison offers a glimmer of hope. Indian startups witnessed a notable uptick of 54%, with funding increasing from $777 million in February 2023 to $1.2 billion in March 2023.

Late-stage funding, on the other hand, suffered a substantial decline, amassing $1.8 billion in Q1 2023. This represents a dramatic drop of 79% when compared to the same period in 2022 and a more moderate 23% decline compared to Q4 of the previous year.

In sum, the report underlines a 21% decrease in total funding during Q1 2023 as compared to the final quarter of 2022. Nevertheless, there is a glimmer of optimism in the form of the month-on-month funding trends, with a 54% increase noted from $777 million in February to $1.2 billion in March 2023.

During this quarter, nine funding rounds exceeded the $100 million mark, involving prominent companies like PhonePe, Lenskart, Mintify, Insurance Dekho, FreshtoHome foods, TI Clean Mobility, and KreditBee, all securing substantial investments.

For instance, PhonePe managed to raise a total of $650 million across multiple Series D rounds in Q1 2023, valuing the company at an impressive $12 billion. Meanwhile, Lenskart secured $500 million in a Series J round, led by a subsidiary of the Abu Dhabi Investment Authority (ADIA), bringing the company's valuation to $4.5 billion, as detailed in the Tracxn report.

In terms of sectors, fintech, retail, and enterprise applications were the leading beneficiaries of funding in Q1 2023. Notably, the fintech segment experienced a substantial growth of 150% compared to Q4 2022, albeit still a 51% drop when compared to Q1 2022.

While funding faced challenges, the exit landscape remained relatively stable in terms of acquisitions, with 46 acquisitions taking place in Q1 2023, compared to 43 in the preceding quarter, as highlighted in the report.

Q2 2023 Funding Landscape for Indian Startups 

Indian startups are encountering persistent challenges as funding sources remain scarce. In the April-June (Q2) period of 2023, the total investment in the country dwindled to $3.22 billion, marking a substantial decline of nearly 57% compared to the $7.55 billion secured during the same quarter in the previous year.

Funding for Indian Startups in Q3 2023 

In the third quarter of the calendar year 2023, investment in Indian startups hit a notable low, reaching levels not seen in five years. Funding in this period witnessed a substantial 54% year-on-year decline, settling at $1.5 billion. Furthermore, on a quarterly basis, funding experienced a 29% decrease, as reported by market intelligence platform Tracxn.

During this quarter, only five funding rounds managed to secure investments exceeding the $100 million mark. These prominent rounds featured companies such as Perfios, Zepto, Ola Electric, Ather Energy, and Zyber 365.

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