VC funding dips in India in Q2 as investors focus on cash preservation

VC investment in India dipped in the April-June quarter (Q2) as investors shifted their focus to cash preservation in anticipation of funding becoming less easy to obtain over the next few quarters, a report showed on Monday.

VC investors in India now require companies to strengthen their paths to profitability and lower their cash burn, according to the report by KPMG.

Venture financing in India surpassed $6.5 billion for the fourth consecutive quarter in Q2, and fintech remained the hottest area of investment in India during the quarter, in addition to e-commerce, social commerce, and gaming.

"In India, the funding hasn't dried up yet, but many startups are taking proactive steps to reduce their cash burn given the increase in federal interest rates, the geo-political crisis, and other evolving issues," said Nitish Poddar, Partner and National Leader, Private Equity, KPMG in India.

Agritech also attracted a growing number of deals in Q2 in India, while the majority of these deals occurred at very early deal stages, the space is expected to see deal sizes grow as the sector evolves, said the report.

While VC investment in India may be muted over the next quarter or two due to the global reduction in money supply and other factors, the country is expected to remain quite attractive to VC investors over the medium to longer term due to its relatively positive macroeconomic environment and market demographics, the report noted.

Globally, investors became more selective and the VC funding reached $120.2 billion during the second quarter.

"Investors increased focus on profitability while the Americas and Europe showed most resilience, attracting $66.2 billion and $27.3 billion in VC funding, respectively, in Q2," said the report.

"With valuations declining, many tech companies performing poorly on the public markets, and no end in sight to the level of geopolitical uncertainty, notwithstanding other challenges facing the VC market globally, we're starting to see investors instructing their portfolio companies to preserve cash." said Jonathan Lavender, Global Head, KPMG Private Enterprise, KPMG International.

Heading into Q3, this trend is expected to continue as startups look to survive in an increasingly challenging environment where profitability will be of critical importance," he added.

Global fundraising reached $158.6 billion at mid-year (first six months of the year), a record pace despite market uncertainty.

"Against a backdrop of geopolitical, supply chain and economic uncertainty, overall global VC investment is falling, but several sectors, including fintech and cleantech, are beneficiaries of more selective investments," the report emphasized.

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