The domestic fintech start-ups funding witnessed a decline of 47% to ₹5,650 crore in 2022 year-on-year (YoY), as compared to the same period in 2021, according to a report by the market intelligence platform Tracxn. The number of funding rounds also declined by 29% to 390 rounds in 2022 as compared to the same period in 2021.
The drop in funding is attributed to the decline of late-stage funding by 56% to ₹370 crore in 2022 against ₹830 crore in the same period last year. According to the report, there has been a constant decrease in funding of more than 30% in each quarter of 2022.
In 2022, as many as 13 funding rounds of fintech start-ups were valued at more than $100 million, which is a 50% decline from 26 rounds in 2021. Moreover, only two fintech start-ups witnessed initial public offerings in 2022 against four in 2021. In 2022, only four startups reached unicorn status as compared to 13 unicorns in 2021.
"India is currently experiencing funding winter. Growing inflation and macroeconomic tensions have made the investors step back from making big investment decisions," according to the report.
The number of acquisitions has increased by 33% from 30 acquisitions in 2021 to 40 acquisitions in 2022 owing to an increase in consolidations that are happening across industries due to declining valuations of startups and more opportunities for major players to expand their business.
According to the report, the acquisition of Ezetap by Razorpay is one of the major transactions that took place in 2022, which will help Razorpay expand its business into offline payments and in-person payments. In terms of sectors, alternative lending, payments, and banking tech are the top-funded sectors in fintech in 2022. Of this, the alternative lending segment has been the best-performing segment in the domestic fintech ecosystem, with total funding of ₹212 crore, which is higher than the total funds raised by payments and banking tech combined in 2022. In 2022, Bengaluru tops the list of highest-funded cities, followed by Mumbai and Chennai.
The development comes at a time when the global startup ecosystem is witnessing a funding winter, mass layoffs and resignations. According to a report by PwC, domestic startups funding witnessed a decline of 33% year-on-year (YoY) to ₹2,400 crore in CY22, as compared to ₹3,500 crore in CY21. According to the 'Startup Deals Tracker-CY22,' report, total of 1,021 startups raised funds in CY22 against 1,106 startups in CY21.
The fintech sector contributed around 20% of the total funding in CY22, with a decline of 40% in funding activity as compared to CY21.
Amit Nawka, partner - deals & India startups leader, PwC India, said, "With significant dry powder waiting to be invested, it seems likely that the funding scenario will begin to normalise after 2-3 quarters. Until then, however, many start-ups are using this time to tighten operating models and optimise their cash runway by deferring discretionary spends and investments."