India Deals Barometer Report: Startup fundraising drops 25% to $866m in Feb, deal volume falls too

Indian startups continued to see gloomy days as they were able to raise only $866 million in funding from private equity (PE) and venture capital (VC) investors in February compared with $1.15 billion in January, according to proprietary data compiled by DealStreetAsia.

While the subdued investor sentiment led to an almost 25% fall in the value of deals recorded, there was a similar drop in deal volume at 76 transactions in February.

Of the total deals recorded during the month, the value of just three transactions was not disclosed, the data show.

Capital infusion by risk investors in February was nowhere close to the amount raised in the corresponding period last year when startups had scooped up a whopping $3.64 billion across 156 PE-VC transactions.

However, despite a good headstart, companies raised lower capital in 2022 compared with 2021, as the effect of the ongoing funding winter was more dominant in the second half of 2022. This year seems no better, although industry experts have forecasted a recovery in startup fundraising second quarter onwards.

On the brighter side, February surprised with three mega deals, or deals worth at least $100 million, compared with two in January and December each and just one in November last year. The biggest funding deal of $150 million during the month was closed by insurance platform InsuranceDekho as part of its Series A funding round, which was a mix of equity and debt.

TVS Capital Funds and Goldman Sachs Asset Management led the round, which also saw the participation of Investcorp, Avatar Ventures, and LeapFrog Investments.

Top 10 deals in February 2023

Other prominent deals in the month include FreshToHome ($104 million), PhonePe ($100 million), Acceldata ($50 million), Ushur Lands ($50 million), and Pan Healthcare ($48 million), among others.

The pace at which startups were turning unicorns for the past few years also dipped considerably in 2022. No startup made it to the unicorn club in February for the fifth consecutive month. Last year, in January and February combined, India saw eight startups enter the unicorn club. Unicorns are privately-held companies valued at $1 billion and above.

Software races to the top

Software pipped financial services to emerge as the most funded industry in February. Software startups raised $201.9 million in the month from 19 deals, compared with $161.8 million from 17 deals in January.

According to a report by Bessemer Venture Partners released in 2022, the Indian SaaS market value is projected to reach $50 billion by 2030. 

The top software fundraiser was data observability platform Acceldata which amassed $50 million in Series C funding led by March Capital, with additional investment from Sanabil Investments, Industry Ventures, and existing investor Insight Partners.

The other prominent fundraisers in the software industry include Ushur Lands ($50 million), Entropik ($25 million), Mintoak ($20 million), Rezolve.ai ($11 million), and Intangles ($10 million), among others.

The only deal in insurance, InsuranceDekho, pushed the industry to the second spot. Meanwhile, financial services slipped to the third spot with $132.7 million in funding in February as against $515.2 million in January. Within financial services, PhonePe raised the largest round of $100 million in primary capital from Ribbit Capital, Tiger Global and TVS Capital Funds at a pre-money valuation of $12 billion.

Together the top three industries – software, insurance and financial services – raised a total of $484.6 million, accounting for about 56% of the total value in February.

Within verticals, e-commerce ($199.1 million), insurtech ($150 million), and SaaS ($139.7 million) were the top scorers.

Growth-stage deals see an uptick

While the value of pre-seed and seed stage deals remained almost flat at $48.8 million compared with January, the volume dropped 21% to 26 in February. Meanwhile, pre-Series A and Series A stage deals jumped 58% to $290.5 million from $183.4 million in the previous month.

Growth-stage deals continued to lead funding value in February. Growth-stage deals, defined as Series B or post-Series B rounds (including private equity) raked in an aggregate of about $367.6 million through eight transactions, accounting for about 42% of the total deal value in the month. This is a growth of about 12% over January when growth-stage deals raised a total of $327 million from 12 transactions.

Startups that raised growth rounds in February include meat retailer FreshToHome, fintech platform PhonePe, data observability platform Acceldata, EV-as-a-service platform Zypp Electric, customer experience automation startup Ushur Lands, two-wheeler financing platform Bike Bazaar, and fintech startup Eko India Financial Services, among others.

There were four debt deals worth $47.3 million and two private equity deals worth $81 million in February. In comparison, six debt deals garnered a total of $64 million, while two private equity deals scooped up $360 million in funding in January.

Most active investors

Venture Catalysts, along with its accelerator fund 9Unicorns, was the most active investor in February with a total of five investments in startups, including Lorien Finance, Cusmat, Zypp Electric, and Rezolve.ai. Venture Catalysts and 9Unicorns were the common investors in Zypp Electric.

Inflection Point Ventures and Mumbai Angels followed with four investments each. Meanwhile, Lightspeed, Force Ventures, Sequoia Capital India, and Alteria Capital made three investments each.