Indian startup funding slumps 75% YoY to $2.8 billion in Jan-Mar, as macro challenges weigh

• In Q1 2023, Indian startups raised a total of $2.8 billion, which is 75% lower compared to the same period in the previous year ($11.9 billion).
• The report attributes the drop in funding to rising inflation and interest rates, which have impacted investments significantly.
• There were no new unicorns created in January to March 2023, compared with 14 unicorns created during the same period last year, as per Tracxn report.
• The report highlighted that India is the second highest-funded geography after the US in Q1 2023.
• Though India is in second place, the funding is still on a declining trend.

The ongoing macroeconomic challenges have hit the Indian startup industry in terms of funding from investors. In Q1 2023, Indian startups raised a total of $2.8 billion, which is 75% lower compared to the same period in the previous year ($11.9 billion), according to Tracxn Geo Quarterly Report: India Tech - Q1 2023.

The report attributes the drop in funding to rising inflation and interest rates, which have impacted investments significantly.

Early-stage startup funding dropped 4% to $844 million in Q1 2023 as compared to the previous quarter. Meanwhile, seed funding slipped 16% to $153 million from the previous quarter.

Adding to it, late-stage rounds in Q1 of 2023 also witnessed a sharp fall of 79% to $1.8 billion from a year ago.

There were no new unicorns created in January to March 2023, compared with 14 unicorns during the same period last year.

Although funding has decreased on a yearly basis, the month-on-month comparison is encouraging as Indian startups saw a significant uptick in funding – a 54% rise to $1.2 billion in March 2023 from $777 million in February.

India is second highest-funded geography after US
The report highlighted that India is the second highest-funded geography after the US in Q1 2023. Despite taking second place, the funding in India is still on a declining trend.

The total overall funding in India declined by 21% in Q1 2023 as compared to Q4 2022 and by more than 75% when compared with Q1 2022. The number of funding rounds in Q1 2023 experienced a drop of 10% and 63% when compared with Q4 2022 and Q1 2022 respectively.

Companies like PhonePe, Lenskart, Mintify, Insurance Dekho, FreshtoHome Foods, TI Clean Mobility and KreditBee were big ticket deals in the January-March quarter, the report said.

As per the report, Bangalore cornered the largest share of the total funds raised in the March quarter, followed by Delhi and Mumbai.

The leading sectors in terms of funding this quarter were fintech, retail and enterprise applications. The fintech segment witnessed a funding growth of 150% compared to Q4 of 2022. However it saw a drop of 51% compared to Q1 2022.

SEE ALSO: Looking for a home loan of ₹75 lakh or above? The RBI rate hike pause might not bring you relief
Super 20 equity funds that have managed to not only beat benchmarks but delivered the best returns in the last one year