Fintech, consumer cos lead financing revival

Consumer, enterprise applications and fintechs emerged as the top funded sectors in 2022, according to data from startup intelligence platform Tracxn. However, funds raised by startups in these sectors shrank in line with the overall decline in private markets, with capital raised by Indian startups plunging 39% to $25.4 billion in 2022 from $41.8 billion the previous year.

There was little change in the top sectors from 2021, with enterprise application startups taking retail into second position.

Consumer startups, including marketplaces, business-to-consumer and e-commerce, raised $20.4 billion across 746 deals in 2022, less than half of the $21.9 billion in 2021 across over 1,099 deals.

The enterprise applications sector, which includes startups in enterprise software, software-as-a-service (SaaS) and HR technology platforms, raised $7.2 billion across 644 deals in 2022. Last year, it was $10 billion across on over 886 agreements.

Fintechs raised $5.7 billion across 348 deals in 2022, compared to $10.3 billion across over 548 deals in 2021. Retail, which received $12.9 billion worth of funding across 614 deals in 2021, dropped out of the three best, with less than half the investment. worth $5.7 billion spread over 384 deals.

In 2023, they will continue to be the dominant themes for venture capitalists.

Early stage VC firm Blume Ventures, one of the top 10 active VCs in India, key verticals over the last 12 months include SaaS, cleantech, fintech and consumertech. “These will continue to be areas of focus throughout the next year as well,” said Ashish Fafadia, a partner at Blume Ventures.

Ashish Sharma, managing partner at InnoVen Capital, echoed similar views. “We expect enterprise SaaS, fintech and consumer internet to see the greatest investor interest,” he said.

However, the pace of financing is still increasing. Amid rising interest rates, high inflation and a possible recession, investors are taking a cautious approach. – The pace will be more calibrated. There is plenty of capital, but it is going to be more cautious, especially for later stages,” said Ganesh Rengaswamy, co-founder and managing partner of Quona Capital.

“The environment will be a bit tough for firms where business models are not set, but this is where the selection parameters and filtering come into play and we are committed to continue with the same approach,” Fafadia said.

Startups working on digital enhancement and transformation, such as artificial intelligence, the Internet of Things, cloud computing and immersive customer experience, will continue to attract investor interest. “Startups in the high-tech arena are predicted to emerge, leveraging the use of augmented reality and virtual reality to enhance quality and add a new dimension to consumers,” Gaurav VK Singhvi, co-founder of We Founder Circle, an early-stage investment platform , so.

In addition to these, the focus on sustainability will increase as investors become positive about, among other things, agritech and climate technology.

In 2022, there was much more focus on unit economics, profitability and building a sustainable business. Startups aimed to lower their cash-burn rate and improve their runways.

Edtech, fintech and cryptocurrency faced the brunt of the above requirements, which were compounded by regulatory upheaval. Edtech funding in India reduced to $2.4 billion in 2022 from $4.1 billion in 2021.

Sharma of InnoVen expects edtech, Web3.0, social to remain soft from a funding point of view in the next year as well.

“Industries that try to be overtly dependent on customer acquisition, with very high customer acquisition costs, will definitely have headwinds,” Fafadia said. “Companies that have a long-term positive trend in average revenue per user and market size are established will be the flavor of the season.”

However, most investors in general are positive about India, despite the slowdown in the markets. “On a global scale, India is better positioned to fare well this winter as most of the top-tier funds have raised record amounts this year, indicating that we may be in for intense investment cycles in the future,” said Shashank Randev, co-founder. , 100X.VC.

“Additionally, recent global developments have increased the relative attractiveness of India as an investment destination for many investors,” he added.