May is the first month of 2022 when startups raised less than $2 billion

• Overall, Indian startups have raised $13.3 billion between January and May 2022.
• Some of these big ticket deals of May 2022 were Zepto’s $200 million round, Ather Energy’s $128 million round.
• India has still managed to create more unicorns between January and May 2022 compared to the year before.

In the middle of a heatwave in May is when the funding winter kicked off this year. May is the first month of the year when the total funds raised fell below $2 billion, according to a recent report by data analytics and consulting company GlobalData.

“The decline in VC funding in May suggests that investors are increasingly becoming cautious in placing bets and startups are also realizing the impact of funding winter. In fact, May also witnessed announcement of very few big-ticket deals above and equal to $100 million,” said Aurojyoti Bose, lead analyst at GlobalData.

Some of these big ticket deals included Zepto’s $200 million round, Ather Energy’s $128 million round and Absolute’s $100 million. In terms of unicorns, only one company — neobanking startup Open — saw its value rise over a billion dollars in May.

Overall, Indian startups have raised $13.3 billion between January and May 2022.

Indian startups are next only to Chinese counterparts in terms of VC funding value among the Asia-Pacific (APAC) countries during the last five months of 2022.

The funding winter could last for one or two years

Fund flow to Indian startups have been slowing down since April due to the after-effects of the Russia-Ukraine war, impending recession and Fed rate interest hikes. This is expected to go on for another 12-18 months, if not 24 months, as per experts.

“Given this environment, capital will be scarce in upcoming quarters,” Vamsi Krishna, chief executive officer and co-founder of Vedantu, said in a blog post.

Vedantu, Meesho, Cars24 and MFine have already started firing their employees and cutting down their workforce in an attempt to increase their runway. Unacademy too have started to rethink their business model to include more revenue streams.

Early and growth stage startups will find it tougher to raise funds

Even though the Indian startup valuations have taken a hit in April, 2022 has created more unicorns in the first five months of 2022 as compared to the entire year before.

According to a recent report by market intelligence provider Tracxn, 14 Indian companies turned unicorns — valued at over a billion dollars — in 2022. Last year, the number was at 13 during the same time frame. But it is also important to note that only one startup entered the unicorn club in April and May.

The pace came back however as PhysicsWallah, Purplle and Leadsquared turned unicorns in June. But stakeholders claim that the funds will flow slowly for the near-term.

We Founder Circle’s cofounder Gaurav Singhvi told Business Insider India that the investors will have limited capital to invest in startups, which will make them even more selective about the companies they want to invest in. The biggest impact of this limited funding would be faced by early and growth stage startups, instead of well-established companies.

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