Funding Indian startups: Retail, fintech hit as startup funding falls 35% this year
Retail and fintech sectors witnessed a 57% and 41% drop respectively in amounts raised in 2022, according to Tracxn’s India Tech 2022 annual report. Nevertheless, these two sectors along with enterprise applications remained the top fundraisers during the year.
The report also recorded a decline in investor exits during the year as valuations realized during exits were subdued. In 2022, 11 startups completed their initial public offerings (IPOs), compared to 16 last year.
This year’s top IPOs in the segment include logistics services provider Delhivery (May 2022), B2B digital payments platform AGS Transact Technologies and Bengaluru-based digital certification platform eMudhra. The average IPO for companies in the sector fell to $517 million in 2022 from $4 billion in 2021 as several major consumer internet companies including One 97 Communications, PB Fintech, CarTrade Tech, Zomato and Nazara Technologies went public.
In terms of exits through acquisitions, activity remained largely flat with 229 acquisitions in 2022 versus 242 in 2021. However, the average acquisition price during the current year fell to $77.2 million from $224 million last year.
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Among the top acquisitions in 2022 were Zomato’s acquisition of e-commerce firm Blinkit, TransUnion’s acquisition of Fintellix, Thrasio’s acquisition of Lifelong Online, Razorpay’s acquisition of Ezetap and Shiprocket’s acquisition of Pickrr.
A trend that has emerged over the past few years is that both Indian new-age companies and legacy firms are engaging in start-up M&A activity, said Tracxn co-founder and CEO Neha Singh .
“In M&As, earlier it was mostly cross-border M&As — Pearson bought TutorVista, Walmart bought Flipkart — but now two new buckets have emerged,” she told ET. “First, Indian new age companies are buying other companies. For example, Byju’s is making a series of acquisitions. Second, traditional companies like Reliance and Tata are also buying Indian startups, which has also accelerated value creation for investors and the ecosystem.”
Look forward to
The decline in overall funding was primarily driven by a decline in late-stage funding, Tracxn noted. Late-stage funding fell 45% to $16.1 billion in 2022, it said.
“The number of unicorns being created has obviously decreased,” Singh said. “In India alone the drop is 47% YTD, internationally it is also close to 60%. In terms of the time it takes for companies to turn around a unicorn, the average is about four years from Series A to unicorn,” she said.
ET had reported on Monday that Indian startups in November raised the highest amount in a month since June as a slowdown in funding became noticeable and started hitting the funding market. Tech investors had stressed that despite a slight pick-up in deal activity, there was no sign of a sustained recovery.
Looking ahead, Tracxns Singh said it could still be a few more quarters before the ecosystem bottoms out.
“One question on everyone’s mind is whether the bottom has come or not,” she said. “Looking at the data, it seemed like Q3 this year was the bottom, and Q4 didn’t seem much worse. But we still think it’s too early to say we’ve bottomed. While Indian investors are less pessimistic, globally still talk about a recession and we’ll have to wait a few more quarters to see if we’ve bottomed out.”
To survive the funding winter, startups are taking “unit economics more seriously,” Singh said. This “has been illustrated through the series of mass redundancies that have occurred this year”, she said.
“Although we are currently experiencing a slowdown, startups are establishing clearer and more sustainable paths to growth as investors’ evaluation metrics begin to emphasize good profitability over growth at any cost,” Singh added.
