VC funding in India drops 74% to $2.4 bn in March quarter

Fund inflow for Indian startups remained slow in the January-March quarter of 2023 amid a series of layoffs, shutdowns, and recession fear. A report by GlobalData, a leading data and analytics company, shows that the venture capital (VC) funding activity in India continues to face the funding drought, which begins in 2022, despite significant entrepreneurial activity.

The disclosed funding value of VC deals in the country fell sharply by 74% year-on-year to $2.4 billion during the first quarter of 2023, reveals GlobalData. The report also highlights that VC deals volume witnessed a 48.7% decline YoY to 287 in Q1 2023.

In 2022, a total of 1,726 VC funding deals worth $20.9 billion were announced in India, down 38.2% as compared to 1,715 deals worth $33.8 billion in 2021, dented by economic uncertainty and market volatility.

“The Indian startup ecosystem is yet to come out of the funding winter that started in 2022 with recession fears looming large in 2023. While India suffered a significant setback in terms of both deal volume and value, the impact being more prominent in value terms suggests the growing investor cautiousness for committing big investments amid the unfavorable market conditions,” says Aurojyoti Bose, lead analyst at GlobalData.

India accounted for 5.3% of the number of VC deals announced globally during Q1 2023 while its share of the corresponding deal value stood at 3.6%. Some of the notable VC funding deals announced in India during Q1 2023 include $250 million fundraising by Physicswallah, $200 million funding secured by PhonePe, and $120 million fundraising by KreditBee.

As per the report, the market conditions have remained volatile globally with several other markets also experiencing subdued VC funding activity. Despite the decline, India continues to be a key APAC (Asia-Pacific) market for VC funding and stands next only to China in terms of both VC deals volume and value, it said. Besides, India also remains one of the top five global markets for VC funding activity.

Meanwhile, China-based startups also had to navigate through a challenging regulatory environment and volatile market conditions during the March quarter of 2023. As a result, they raised $9.5 billion in venture capital (VC) funding during the quarter, down 48.2% YoY from Q1 2022. In terms of volume, a total of 820 VC funding deals were announced in China during Q1 2023, a decline of 20.5% compared to Q1 2022. China stands next only to the U.S. in terms of VC deals volume and value in Q1 2023, accounting for 15.3% of the total number of VC deals announced globally and 14.3% of the total deal value.

Globally, VC funding deal volume in the U.S. and the U.K. also declined by 45.3% and 33.8%, respectively, in Q1 2023. The decline in terms of value for these markets stood at 50.2% and 58.1%, respectively.

GlobalData said historic data may change in case some deals get added to previous months because of a delay in the disclosure of information in the public domain.