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Indian Start-ups Face Funding Slump: H1 2023 Records Lowest Investments in Four Years, SaaS Takes the Lead

Indian Start-ups Face Funding Slump: H1 2023 Records Lowest Investments in Four Years, SaaS Takes the Lead

The Indian start-up ecosystem experienced a significant decrease in funding during the first half of the calendar year 2023 (H1CY23), reaching its lowest level in four years. According to a report by PwC India, 298 deals raised a total of $3.8 billion, marking a substantial decline of nearly 36% compared to H2CY22. In comparison to the first half of the previous year, funding value witnessed a staggering 79% decline, with start-ups raising $18.3 billion across 729 deals.

The report, titled “Startup Perspectives—H1 CY23,” highlighted those sectors such as SaaS (Software as a Service), D2C (Direct-to-Consumer), fintech, e-commerce B2B (Business-to-Business), and logistics emerged as the top five sectors in terms of investments. These sectors collectively accounted for approximately 89% of the total funding received in H1 CY23, based on value.

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The edtech sector experienced a significant decline in deal value during the first half of the calendar year 2023 (H1CY23), with a decrease of 91% to $68 million compared to $790 million in H2CY22. This decline can be attributed to the substantial funding rounds in the sector during H2CY22 by companies like BYJU’S and upGrad, which contributed significantly to the overall deal value. In H1CY23, around 60% of the deals in the edtech sector were growth-stage funding rounds, with an average ticket size of $10 million.

On the other hand, several start-ups across different sectors managed to secure substantial funding rounds of $100 million or above during H1CY23. Companies such as Lenskart, FreshToHome, Builder.ai, InsuranceDekho, KreditBee, Mintifi, Zetwerk, and Infra. The market witnessed significant investments during this period.

According to Amit Nawka, Partner—Deals & India Startups Leader at PwC India, active venture capital firms in India have raised new funds in the past year, which indicates that the pace of investments is expected to pick up in the coming months.

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However, investors are now conducting more comprehensive due diligence before making investments, focusing not only on finance and legal aspects but also on technology, HR, and business processes. This increased scrutiny aims to ensure that start-ups have a robust corporate governance framework in place.

While many sectors experienced a decline in funding during H1CY23, there were a few sectors that saw higher investments. The Direct-to-Consumer (D2C), online gaming, and foodtech sectors reported increased funding compared to the previous six months.

The Software-as-a-Service (SaaS) sector accounted for 30% of the total funding during the period, with start-ups raising $1.1 billion across 107 deals. However, this represented a 21% decline compared to H2CY22.

The D2C sector witnessed a significant increase in funding, with companies in this sector raising $981 million in H1CY23, nearly three times more than the previous half-year period. Lenskart and FreshToHome were the major contributors to funding in this sector, accounting for 72% of the total funding received.

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In the fintech sector, funding value decreased by 50% to $604 million from $1.2 billion in H2CY22. Early-stage funding rounds dominated the deal count, accounting for approximately 62% of the deals, with an average ticket size of $5 million. InsuranceDekho, KreditBee, and Mintifi were the key players driving funding in this sector, contributing to 64% of the total funding received.

In H1CY23, the logistics and autotech sectors raised $303 million, representing a 36% decrease from the previous six-month period. Similarly, healthtech funding decreased by 77% to $80 million from $346 million in H2CY22.

On the other hand, the foodtech sector experienced a significant increase in funding, with its value reaching $47 million in H1CY23, four times higher than the funding received in H2CY22.

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The online gaming sector witnessed a notable surge in funding activity, with a threefold increase to $60 million in H1CY23 compared to the previous six-month period. The majority of funding in this sector came from early-stage funding rounds, contributing 73% of the total funding during H1CY23.

However, the recent decision by the GST Council to impose a 28% GST on online gaming is expected to hurt the sector’s ability to attract venture funding in the coming months.

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