Amid decline in VC-PE funding, share of seed deals are rising in India

Venture capital (VC) and private equity (PE) funding in India has moderated from $62 billion in 2022 to $38 billion in 2023, mirroring the global caution on risk capital, a joint report by Bain & Capital and ICVA noted. 

The VC investments in India have come down to 0.4x in 2022, compared to 0.6x globally.

But, despite the decline in deals and fund flow, India maintained its status as the second-largest destination for VC and growth funding in the Asia-Pacific region. 

However, the fund inflow share has reduced from 20 per cent to 12 per cent over 2022-23. 

Interestingly, Japan and China have made gains in fund flows.

But the report also highlights that, with enhanced growth prospects in consumer tech, fin-tech, and SaaS-based companies, these sectors have attracted close to 60 per cent of the total funding in 2023 and became dominant sectors.

However, in 2023, investors directed more focus on traditional industries (e.g., BFSI, healthcare) and emergent domains such as electric mobility, generative AI. 

The year also saw funding landscape facing challenges of inflation, high interest rates, and global economic uncertainties.

The funding winter led to a sharp decline both in number and size of deals, from 1,611 to 880 deals and a drop in average deal size from $16 million to $11 million.

Mega-round funding for Indian companies declined by nearly 70 per cent. However, smaller size deals under $50 million saw a less severe decline of about 45 per cent, indicating long-term investor optimism.

The report also noted that many Startups deferred fundraising, halting the emergence of unicorns and allowing them to return to pre-2019 levels.

While tech sectors like consumer tech, fin-tech, and SaaS remained dominant, their funding share decreased as investors shifted towards traditional sectors like banking, healthcare, and emerging areas such as electric mobility and generative AI.

Consumer tech investments declined from $9.3 billion to $2.4 billion over 2022-23. 

Fintech investments also saw a decline of approximately 0.5x of 2022 levels with a moderation in the early stages.

However, the investments in generative AI witnessed a surge from $15 million to nearly $250 million over 2022-23, the report added.