July's VC funding wave breathes new life into startup ecosystem

Even though the number of deals fell marginally last month from June, the quantum of investment rose, indicating that the worst may be over.

Investors struck 71 deals during the month, slightly lower than 73 recorded in June but considerably higher than the 58 deals seen in April when investment activity sank to a nine-year low.

Domestic startups raised about $666.6 million last month, 55% more than the previous month’s figure of $430 million, according to data collated by VCCEdge, the data research platform of VCCircle.

The average deal size also rebounded to $9.3 million in July from a sharp decline in June, reflecting growth in larger deals. However, startups may not be completely out of the woods, yet.

Though deal volume rose sequentially in July, it was a record low for the month compared to previous years.

On average, July usually has recorded more than 110 deals every year since 2014. With 71 deals, July 2023 had the lowest volume compared to the same month every year since 2014.

Startup funding has remained weak for more than a year, reversing from a period of record investments and skyrocketing valuations in 2021. A variety of factors such as stock market volatility, correction in global tech stocks, and rising interest rates have influenced the funding slump.

“We are almost halfway into the FY, and I expect the second half to perform better for seed to Series A/B stage equity transactions since valuation expectations are more aligned now," said Rahul Chowdhury, managing partner of venture capital firm N+1 Capital and debt fund RevX Capital.

“Many B2C (business-to-commerce) startups are betting on the upcoming festive season to bring significant cheer to them so that they can raise the next round on the confidence of these numbers," he added.

Over the last year, investors have taken a cautious approach, causing a severe financial crunch at many startups who had raised funds at high valuations in 2021. This has forced belt-tightening measures, including mass layoffs. Many others have had to either shut down or were forced to merge with peers.

“I expect some silent down-rounds for late-stage startups, and I am afraid that a few popular startups might have to shut shop as some more skeletons may still be lying in the closet," Chowdhury added.

Among the top deals in July, Battery Smart, a battery swapping platform for electric two- and three-wheelers, raised pre-Series B funding of $33 million from Tiger Global, Blume Ventures, The Ecosystem Integrity Fund and British International Investment.

Logistics marketplace LetsTransport bagged $25 million from Bertelsmann India Investments in a Series D round while software-as-a-service (SaaS) startup Zluri raised $20 million as a part of its Series B round led by Silicon Valley-based Lightspeed Venture Partners. Industrial robotics startup Ati Motors secured $10.85 million in a Series A round, led by Silicon Valley-based True Ventures, with participation from new investor Athera Venture Partners along with existing investors Blume Ventures, Exfinity Venture Partners and MFV Partners.