Funding in early-stage deals in Q2 CY22 continued to be stable at around USD 800 million and is likely to remain stable or even grow in the next few quarters.
After three consecutive quarters of raising more than USD 10 billion, the total funding in the Indian start-up ecosystem fell by 40% during Q2 CY22 to reach USD 6.8 billion. The decline can be attributed to a global slowdown, decrease in tech stock valuations, inflation and geopolitical instability, as per the PwC India report titled, “Startup Deals Tracker – Q2 CY22.” Software as a service (SaaS) and FinTech companies had the highest share of funding in Q2 CY22, totaling more than USD 3.1 billion.
Early-stage deals comprised more than 60% of the total deal volumes with an average ticket size of USD 5 million. Funding in early-stage deals during Q2 CY22 continued to be stable at around USD 800 million and could remain stable or even grow in the next few quarters – given that entrepreneurial activity continues to flourish with increased digitisation as well as the quantum of venture capital funds waiting to be deployed in the Indian market.
Amit Nawka, Partner – Deals & India Startups Leader, PwC India, said, “We expect the overall funding landscape to take 12–18 months to stabilise, during which it would be beneficial for startups to increase their ‘funding runway’. No matter which stage a startup is in, they would do well to keep a close tab on core business and ensure unit economics is strictly as per plan. Valuations are likely to remain under pressure across all funding stages, primarily trickling down from the significant funding slowdown in late-stage or initial public offering (IPO) deals.”
Startup Perspectives for Q2 of CY22 – A snapshot
● M&A transactions: Approximately 54 M&A transactions were executed in the start-up ecosystem in Q2 CY22 – 33% of the M&A deals were in the SaaS space and 24% were in e-commerce and direct-to-consumer (D2C) space. Domestic M&A accounted for 80% of the deals. Two of the largest deals were executed in the FoodTech space – Zomato’s acquisition of Blinkit and Swiggy’s acquisition of Dineout. Considering the broader correction in the funding market, we can expect an increase in consolidations and buyouts.
● Stages of funding: Growth-stage deals, which have accounted for the largest share of the funding pie, represented 62% of the total funding in Q2 CY22 (USD 4.2 billion). The average ticket size continued to fall in Q2 CY22 and was the lowest in the last four quarters at USD 44 million. The average ticket size of late-stage deals continued to be in excess of USD 100 million. Early-stage funding rounds worth USD 807 million (average ticket size of USD 5 million per round) were done in Q2 CY22. Early-stage deals accounted for 61% of the total deal volumes.
● Global and Indian unicorns: Only four start-ups in India attained the unicorn status in Q2 CY22, mirroring a global trend in decline in the number of new unicorns this last quarter. Globally, the total unicorn count has crossed 1,200 with maximum unicorns in Q2 CY22 operational in the SaaS sector, followed by FinTech. The number of decacorns (start-ups valued at USD 10 billion) globally has reached 57, with four new entrants in Q2 CY22.