Startup funding at 9-year low in April as outlook stays grim

Angel investments and venture capital funding in startups stood at $381 million for 58 deals in April. iStockphoto
Angel investments and venture capital funding in startups stood at $381 million for 58 deals in April. iStockphoto

Summary

  • Startups have been facing a prolonged funding winter amid recessionary conditions globally

Funding activity and deal volume for Indian startups worsened to a nine-year low in April, signalling a persistently challenging business environment for these companies.

Angel investments and venture capital funding in Indian startups stood at $381 million across 58 deals in April. This was the lowest figure since April 2014, when 50 deals worth $108 million were announced, according to data collated by VCCEdge, the research platform of VCCircle.

The startup ecosystem has been in the midst of a prolonged funding winter amid rising interest rates, recessionary economic conditions worldwide, stock market volatility, and re-rating of technology stocks. This has turned investors cautious and resulted in a sharp decline in the amount of funding available for startups.

Additionally, concerns about excessively high valuations of startups have led to a re-evaluation of investments, with many investors becoming more selective about where they put their money. This has also contributed to the decline in funding activity and deal-making in the Indian startup ecosystem. On an average, 1.9 deals were inked daily in April this year. In terms of data for the month, deal-making was the lowest this year since 2015. On a month-on-month basis, too, deal-making in April was the lowest thus far in 2023.

In April 2022, Indian startups recorded 146 deals garnering a total of $3.3 billion. Comparatively, total funding raised so far in 2023 has yet to cross the value recorded in April 2022 alone.

This year, March saw startup funding transactions worth $1.1 billion, double February’s revised number of $482 million, but less than half the aggregate value of deals recorded in March 2022.

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Startup funding activity in India boomed in 2021 as venture capital and private equity investors poured billions of dollars into local companies. India reached the milestone of having 100 unicorns, or startups with a valuation of $1 billion or more, in 2021. However, as stock markets corrected and central banks began hardening interest rates, concerns arose about excessively high valuations impacting startup funding activity.

“The bear market is expected to persist until there is a substantial improvement in the global macroeconomic conditions," Mohamad Faraz, co-founder and partner at micro-venture capital firm Upsparks Capital, said in an interview. “Currently, there are relatively low number of deals being made, and the deal-making process has slowed across all stages in India due to cautious sentiment among investors. Startups in India are adopting a default-alive mindset until there is a change in the situation."

The funding crunch has forced several startups to take drastic cost-cutting measures including layoffs. Last week, SoftBank-backed e-commerce platform Meesho sacked 15% of its total workforce or nearly 251 employees. It was the third round of layoffs at Meesho in about a year. The startup had in August 2022 fired nearly 300 employees from its grocery vertical Superstore, which was at the time operational in six states. It had also given pink slips to about 150 employees in April last year.

Meanwhile, online math tutoring platform Cuemath on Monday announced laying off 100 employees or nearly 12.5% of its 800-strong staff. The Bengaluru-based edtech startup’s founder Manan Khurma also returned as its chief executive officer.

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