Funding Winter shuts over 35,000 startups in 2023. Will VCs fund tech platforms this year?
funding winter intensified, according to a report by Bain & Company in collaboration with the Indian Venture and Alternate Capital Association (IVCA). A convergence of domestic and global factors including stubborn inflation, heightened investors' performance expectations, and persistent higher interest rates prolonged the funding winter, the report said, adding that softening global consumption and ongoing geopolitical uncertainties hindered startups from showcasing the necessary performance.
These challenges led to a decline in both deal volume and average deal size. The deal volume compressed by approximately 45%, falling from 1,611 deals to 880 over 2022–23; average deal value decreased by about 30%, from $16 million to $11 million over 2022–23, while the share of seed deals rising from approximately 60% to 70% during the same period.
In terms of deal flow shifts, the number of mega rounds plummeted by almost 70%, from 48 to 15 over 2022–23. Also, the emergence of unicorns experienced substantial declines reaching pre-2019 levels, the report noted.
As per the latest data, small and medium deals (less than $50 million) witnessed milder compression, declining by about 45% from 1,501 to 852 over 2022–23, indicating investor confidence in India’s medium-to-long-term prospects. In addition, over 20,000 employees were sacked by leading startups with edtech contributing the largest share, the company said.
However, India still retained its position as the second-largest destination for Venture Capital and growth funding in the Asia Pacific region, despite the decline in funding value and volume. The previous funding winter cycles, during which valuations fell and profits were prioritized once again, were succeeded by the
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