VC funding in Indian startups sinks to a 6-year low in November

By Mansi Verma

Venture capital (VC) funding to Indian startups hit a six-year low in November, with little signs of a thaw in the prolonged funding winter.

Indian startups recorded only $223 million in 35 deals in November, a fall of about 66 percent from $655 million in 52 deals in the previous month, data shared by Venture Intelligence on December 1 shows.

The only time the funding sank lower for the Indian startups was in January 2017 at $207 million in 43 deals.

“November and December generally receive lower funding with the year coming to an end and the festive season. VCs are not doing newer rounds and mostly looking at closing pending ones. This along with caution among investors is pulling the numbers down,” Mitesh Shah, founder of VC firm IPV, told Moneycontrol.

While investors are open to evaluating startups, Shah added that investors had become more selective and were not running after numbers. “Now people are weighing all the options before committing to anything,” he said.

The month also recorded a massive year-on-year decline of 78.2 percent from $1.02 billion in 62 deals in November of 2022.

Startups shifting gears

The impact is apparent on the overall funding for 2023. Indian startups recorded about $7.05 billion in funding till November, down 71 percent from $24.36 billion in 2022.

Venture capital firms also slowed down on closing rounds with the number of deals down to half at 544 in the first 11 months of 2023 from over 1,226 in the whole of 2022.

This comes at a time when investors have shifted focus from high-growth ventures to profitable startups, prolonging the funding winter.

It was in FY23 that startups shifted gears to focus on profitability. The firms, which were on a growth spree in 2021, laid off staff and trimmed marketing and advertising budgets to cut costs.

From 2022 to date, approximately 100 startups have let go nearly 32,000 employees, Moneycontrol's layoff tracker shows.

Stage-wise funding

According to the reported numbers in FY23, companies including upGrad, Eruditus, Practo, LEAD, and Moglix, trimmed their losses. These developments, however, are yet to make an impact on the late-stage funding rounds.

Late-stage funding rounds again disappeared from the ecosystem in the last two months, following a noticeable resurgence in August and September.

In 2023, startups recorded only 45 deals with a total funding of $1.9 billion, down from 77 deals with a funding of $6.8 billion in the previous year.

While early-stage rounds have also been few and far, recording only $1.14 billion in funding in 316 deals, the top deals in November ranged only from seed to series B, indicating greenshoots for early-stage funding.

Investors, however, expect better deal flow in 2024 and a comeback for late-stage deals in the later half of the year.

“I believe the numbers are trailing the actual sentiment. There is a lot more positivity and excitement going into the final calendar month of 2023,” Anirudh Damani, Managing Partner, Artha Venture Fund told Moneycontrol.

With equity markets at record highs, Damani said, the recovery in the private markets was around the corner.

“I expect a fantastic year for investing in 2024, both for investors and founders. The funnel has restarted, the move up the funnell will be later next year. So, I expect a flurry of activity in the next two quarters, especially post the 2024 elections,” Damani said.

Among the most active VCs, Peak XV Partners (formerly Sequoia India) led with 39 deals followed closely by Blume Ventures and Accel India with 26 and 20 deals. After the top three, Rainmatter Capital and Nexus Venture Partners followed with investments in 16 and 13 companies this year.