Seed funding India falls 68% after Tiger and SoftBank close virtually no deals

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By Webdesk

Several high-flying Indian startups, including Byju’s, Swiggy and PharmEasy, have experienced dramatic downward revisions in their valuations.

Experience Indian startups a significant contraction in funding in the first half of 2023, demonstrating the knock-on effect of broader public market instability on young companies in emerging regions.

In the first six months of 2023, Indian startups raised just $5.46 billion, a substantial drop of 68% from the $17.1 billion raised in the same period in 2022, and down from $13.4 billion in H1 2021, according to data from market research firm Tracxn. with TechCrunch.

This year has so far not produced any new unicorns in the Indian startup ecosystem, a stark contrast to the 18 newcomers to the billionaire club in H1 2022 and 16 struck during the corresponding period last year.

The funding drought is permeating startups at various stages. A total of 325 seed funding deals were closed in the first half of 2023, a dramatic decrease from the 936 in the same period in 2022 and 921 in the first half of 2021, according to Tracxn data.

Other early-stage funding rounds, primarily Series A and Series B, fell to 108, compared to 296 and 211 in the corresponding periods in 2022 and 2021, respectively. Late-stage funding also suffered, dropping to 36 deals from 137 and 114 in comparable periods in previous years.

The slowdown comes as many late-stage investors, formerly prolific financiers of Indian startups, have stepped back. Tiger Global has closed just one deal in India this year, according to Tracxn and Crunchbase, while SoftBank, which deployed more than $3 billion in India in 2021, and Insight Partners, which supported several late-stage startups last year and into 2021 , virtually no checks.

Instead, SoftBank has increased liquidity. According to a market source familiar with the matter, SoftBank has been selling a portion of its Paytm stake every day for the past few weeks. Chief executive Masayoshi Son said at the company’s annual general meeting last week that SoftBank, which has invested just $650 million in the past two reported quarters through its Vision Funds around the world, plans to launch the “counteroffensive” soon. by resuming AI investments.

Tiger Global is very unlikely to forge investment in new startups in India in the coming months, a partner of the company recently told a founder. Sovereign wealth funds, particularly from the Middle East, have financed the vast majority of late-stage deals in India in recent quarters.

Rahul Chandra, a seasoned investor and co-founder of Arkam Ventures, said he does not expect some prolific late-stage investors to return to their usual investing activity in India for at least another two years.

The lack of participation from late-stage financiers and virtually no IPO has also whetted the appetites of many mid-stage investors, who struggle to come up with new underwriting models that reflect current public market views. Several high-flying Indian startups, including Byju’s, Swiggy and PharmEasy, have experienced dramatic downward revisions in their valuations – by as much as 50% or even more.

Despite this setback, there remains a ray of hope for Indian start-ups in the form of significant dry powder – untapped capital reserves of venture capitalists. Almost every active venture capital firm in India, including Peak XV Partners, Lightspeed, Accel, Elevation Capital, Matrix India Partners, 3One4 Capital and Blume Ventures, has brought in new and larger funds in the past 18 months.

Chandra said it is likely that the pace of investment will pick up in the coming months.

“We are constrained by mostly locally available capital, which I expect will behave in a rational way because there is no irrational exuberance coming in to drive up the valuation. It’s still going to mean people chasing each other for term sheets for the good founders because more capital will be deployed over the next two years,” he told TechCrunch in an interview.

Indeed, Peak XV, Lightspeed and Accel have escalated their deal talks and are on track to close nearly 50 early-stage deals since mid-March, according to people familiar with the matter.

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