Venture capital investment is down in India

The Venture capital (VC) investments in Indian startups plunged over 38 per cent in 2022 as economic uncertainty and market volatility affected fundraising and investment activities . Despite significant entrepreneurial activity, the disclosed funding value of VC deals in the country suffered a massive year-on-year (YoY) 74% drop to $2.4 billion during the first quarter (Q1) of 2023, as per the report of GlobalData.

Venture capital (VC) investment is a critical source of funding for startups and early-stage companies looking to scale their businesses. While VC investment has grown significantly in recent years, there have been some fluctuations in investment levels in different regions and sectors.

2022 signalled a recalibration for venture capital (VC) investments globally after a record capital influx over the last few years. Increasing macroeconomic uncertainty and recessionary fears drove caution in investing momentum globally, headlined by a few key triggers:

(a) post-pandemic tightening of monetary policy as central banks pulled the plug on access to cheap capital

(b) intensifying geopolitical tensions (e.g., Russia-Ukraine conflict, US-China decoupling)

(c) trade sanctions by US and Europe, leading to global supply chain shocks

(d) surfacing of irregularities in corporate governance across the tech ecosystem globally.

The data sheet says, a total of 1,726 VC funding deals worth USD 20.9 billion were announced in India in 2022 compared to 1,715 deals worth USD 33.8 billion in 2021. The Q1 of 2023 has witnessed a 48.7% decline YoY to 287 .

Expert says, 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 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.

However, 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 market for VC funding and stands next only to China in terms of both VC deals volume and value. It also remains one of the top five global markets for VC funding activity.

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.

Dr. Deepak Kumar Sahu, President & CEO, VARINDIA