Start-up funding picks up in October, but fintech and edtech are struggling

Startup funding in India saw its first uptick for the year in October after nine months of a downward trend. Indian startups raised $1.08 billion in capital, up 39 percent compared to September 2022, but down 69 percent year-on-year, according to Tracxn data.

The spike in funding in October was driven by late-stage deals worth $846 million, up 265 percent from September. “This is mostly attributed to the two $100 million-plus rounds received by Udaan and Byju,” according to Tracxn.

Edtech decacorn Byju has raised $250 million in a Series F round from existing investors as it continues to battle staggering losses and mass layoffs, while B2B e-commerce unicorn Udaan raised $120 million from existing shareholders as it plans to go public in 12-18 months. This round came before Udaan laid off 350 employees in November.

Despite increased momentum in late-stage deals, seed funding and early-stage funding continued to decline month-on-month by 17 percent and 63 percent, respectively. Retail, edtech, and transportation and logistics emerged as the top three funded sectors in October, Tracxn shared.

Fintech financing winter

Interestingly, fintech, a traditionally popular sector among VCs, saw funding drop to its lowest this year at $109 million, down 48 percent month-on-month and a whopping 93 percent since October 2021.

“The payments segment (best performing sector in 2021) is one of the most affected in 2022. The segment has seen a 53 percent drop in total funding in 2022 YTD compared to the same period last year,” Tracxn revealed. “Another segment that has been heavily affected is cryptocurrencies. Until October 2022, it has seen a 48 percent drop in funding compared to the same period last year, it says.

Sharp decline in the value of cryptoassets has led to a significant drop in transaction volumes for exchanges worldwide, including on Indian platforms such as WazirX, CoinSwitch Kuber and CoinDCX. “Also, the regulatory uncertainty has affected investor confidence, due to which funding in the sector has seen a major drop,” Tracxn said.

Overall, the fintech sector only saw one late-stage funding of $50 million in hybrid blockchain startup XinFin (which is now a soonicorn). Alternative lending and investment technology, meanwhile, were the most funded fintech segments.

“​​Investment technology is the top market in the fintech sector, seeing a 30 percent increase in total funding up to October 2022 compared to the same period last year,” the report added.

Edtech’s struggles

Edtech has been under the scanner lately for being the hardest hit sector when it comes to startup layoffs. Cumulatively, 11 edtech startups, including market leaders Byju’s, Unacademy and Vedantu, have laid off nearly 6,500 employees this year, according to Tracxn findings. The sector has also seen changes in business models, widespread cost-cutting exercises and total closure.

Edtech funding is also down in 2022 following the pandemic-led boom in online education in 2021. The sector has raised $2.43 billion in total funding through October, down 38 percent from $3.98 billion last year .

Edtech added just two new unicorns this year – LEAD School and PhysicsWallah, both of which raised $100 million rounds each from GSV Ventures and WestBridge Capital.

Also read: Engineers in India found more startups than MBA graduates. What are B-schools doing to push students towards entrepreneurship?

Also read: Winter over for tech start-ups? Fundraising reached $15.7 billion in ’22; deal volume up 78% year-on-year