Investment in Indian startups in the first half of 2023 (H1 CY23) hit a four-year low, falling by 36 percent to USD 3.8 billion, according to a report by PwC India. The decline in funding can be attributed to investors taking longer in due diligence before investing in any aspect of a business. The report, titled Startup Perspectives – H1 CY23, revealed that early-stage deals accounted for 57 percent of the total funding by volume in H1 CY23, but only contributed to around 16 percent of the total funding by value, the lowest in the last two years.
The report also highlighted that the Indian startup ecosystem experienced a decline of nearly 36 percent in funding in H1 CY23 compared to the previous half (H2 CY22), which recorded USD 5.9 billion in investments. Despite these challenging funding market conditions, investors have continued to support their portfolio companies by increasing their investments in those that have shown positive growth.
Amit Nawka, Partner – Deals & India Startups Leader at PwC India, commented on the current investment outlook for Indian startups, stating that a funding winter is just a season in a startup’s journey. He acknowledged that while there might be a slowdown in startup funding, venture capitalists still have significant untapped capital reserves. Several active VC firms in India have recently secured new funds, indicating a potential increase in investment activity in the coming months.
Nawka emphasized that investors are conducting more thorough due diligence before making investments, paying attention to areas beyond the typical finance and legal aspects. They are scrutinizing technology, human resources, and business processes to ensure that startups have a robust corporate governance framework.
The report also noted that while venture capital funding declined in H1 CY23, merger and acquisition (M&A) transactions remained stable compared to H2 CY22. The first half of 2023 saw the execution of 80 M&A deals involving startups, with 80 percent being domestic transactions and the remaining being cross-border transactions.
In conclusion, the Indian startup ecosystem experienced a significant decline in investment during the first half of 2023, with early-stage deals bearing the brunt of the decrease. However, industry experts remain optimistic about the future, highlighting the untapped capital reserves held by venture capitalists and the potential for increased investment activity in the coming months. While investors are taking longer in due diligence, they are ensuring that startups have a robust corporate governance framework.
