India’s startup funding has plummeted by 68% due to the lack of significant deals from Tiger and SoftBank

India's startup funding has plummeted by 68% due to the lack of significant deals from Tiger and SoftBank

Indian startups such as Byju’s, Swiggy, and PharmEasy have faced a significant decrease in their valuations. The funding for Indian startups has contracted considerably in the first half of 2023, as influential late-stage investors have reduced their investments due to a slowdown in the overall public market. During this period, Indian startups managed to raise only $5.46 billion, marking a substantial 68% decline from the $17.1 billion raised in the same timeframe in 2022 and a drop from $13.4 billion in the first half of 2021. This decline is in stark contrast to the previous years, which saw the emergence of numerous new unicorns.

The funding shortage has affected startups at different stages, with a significant decrease in seed funding deals from 936 in 2022 to 325 in the first half of 2023. Early-stage funding rounds, including Series A and Series B, also experienced a decline from 296 and 211 in 2022 to 108 in 2023. Late-stage funding deals reduced to 36 from 137 and 114 in previous years.

This decline in funding can be attributed to the reduced activity of late-stage investors such as Tiger Global and SoftBank, who have made minimal investments in India. SoftBank has been focusing on selling a portion of its Paytm stake to increase liquidity, while Tiger Global has expressed reluctance to invest in new Indian startups for the next few months. Sovereign funds, particularly from the Middle East, have played a significant role in financing deals in India recently.

As a result of the lack of late-stage investors and a dearth of IPOs, mid-stage investors are also facing challenges in finding suitable underwriting models that align with the current market sentiment. Several prominent Indian startups, including Byju’s, Swiggy, and PharmEasy, have seen a drastic decrease in their valuations, dropping by 50% or even more.

However, there is still hope for Indian startups, as venture capital firms hold substantial untapped capital reserves. Many active VC firms in India have raised new and larger funds in the past 18 months, providing potential opportunities for startups. Despite the current setbacks, there is an expectation that investments will increase in the coming months, driven by the availability of capital and a more rational approach to valuations. VC firms like Peak XV Partners, Lightspeed, Accel, Elevation Capital, Matrix Partners India, 3one4 Capital, and Blume Ventures have been actively pursuing early-stage deals since mid-March, signaling a positive trend in the investment landscape.