Losing momentum after a good start

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Many animals hibernate during winters. Not the unicorns, however.

A total of 18 Indian startups entered the coveted unicorn club in the first half of 2022, up from 14 in the same period last year. At the aggregate level, Indian startups raised $17.1 billion in 891 transactions between January and June. That’s 82.8% more than the $9.4 billion raised from 541 deals in the first half of last year, according to Your story To research.

While the exceptional growth in the first half of 2022 looks compelling enough to challenge the “funding winter” talk of the startup town, the numbers should be viewed as a continuation of the second half of 2021, when $22.7 billion was invested in 865 deals.

Fundraising has also seen a decline over the past quarter, with May seeing investments of $1.85 billionthe lowest of any month this year.

In recent months, startups have struggled to secure funding and are laying off employees to cut costs and expand their footprint. Many transactions announced in the April-June 2022 quarter had been completed earlier. Clearly, the slump has begun and the next few quarters will be a litmus test for India’s startup ecosystem.

Sid Talwar, co-founder and partner at Lightboxa Mumbai-based venture capital firm, said Your story that the worst is yet to come.

“Honestly, the environment in India is actually robust. There is still a huge market. Rupee depreciation has not fully impacted products and products. People still need products,” explains Sid, “We haven’t really dealt with the grunt of inflation yet in the same way that the United States is facing right now.”

A global upheaval due to rising interest rates, collapsing public markets, high inflation and geopolitical strife due to Russia’s invasion of Ukraine, among other macroeconomic factors, has driven the largest venture capitalists around the world to act with caution.

US-based investment company Y Combinator advised its portfolio companies, including Stripe, Dropbox and Razorpay, to “plan for the worst”. Capital Sequoia called the current era a “crucible moment” in a warning to its founders. “We don’t believe this will be another steep correction followed by an equally rapid V-shaped recovery as we saw at the start of the pandemic,” he said in a presentation by 52 slides.

To add to that, in May, SoftBank and Tiger Global Management announced losses for fiscal year 2022, after which industry sentiment, communicated via emails and Twitter feeds, was grim. The general message is: that things are going to be difficult.

This is going to be particularly difficult for startups dependent on foreign capital. “If you need a lot of money and you’re in hyper-growth mode in a competitive environment, chances are you won’t survive,” says Sid.

Between January and June, Indian startups laid off more than 12,000 employees. Many of these startups were already having difficulty raising funds this year.

For some, the less severe winter

“You have to learn to work under pressure. We must bet on profitability at all costs”, Guarav MunjalCo-founder of edtech unicorn an academy, last valued at $3.4 billionwrote in an email to employees.

Unacademy has laid off more than 600 people since April.

Gaurav’s email signals a shift in market sentiment from the days when investors were more generous with checks.

“I can’t remember a time when Unacademy ever ran out of resources. We always raised more money than was needed,” he wrote.

However, not all sectors and startup stages are as badly affected as some of India’s top edtech unicorns.

In some cases, the data shows interesting trends.

The the total number of transactions increased to 891 in the first half of 2022 (863 shares + 28 debts), up 65% compared to 539 transactions in the same period last year. Interestingly, this number surpassed H2 2021, when 862 transactions (835 stocks + 27 debts) were reported.

Anant Vidur Puri, partner at Bessemer Venture Partnerswhich primarily invests in early-stage startups, echoes the idea: the crunch is not for companies with good models.

“We are actively looking for new agreements,” Anant said. Your story. “We are not among the people who have gone euphoric nor are we going to the (other) extreme.”

The venture capital firm has invested in startups such as Pepper Content, Plobal Apps and MediSage over the past six months.

Among Bessemer’s portfolio, startups haven’t seen much churn or customers withdrawing their software spend, Anant adds.

So isn’t it winter? Well, it does, but not for everyone.

Also, investors prefer to cut smaller checks.

Even so, the pre-Series A funding value has steadily increased over the past few quarters. In H1 2022, startups raised $709.4 million across 475 deals in pre-Series Avs. $242.7m raised across 245 deals in the first half of 2021.

Graphics: Chetan Singh

It is the same with A-Series, too. Between January and June 2022, investors invested $1.4 billion across 92 dealsversus $465.5 million across 55 deals in the same period last year.

With world tiger increasing its seed bets with seed investment in Shopflo and Series A offerings in Groyyo, Battery Smart and PayGlocal, and Capital Sequoia by supporting PayGlocal and Last9, the space is likely to be more crowded. Clearly, the bigger investors wanted an early-stage deal pie.

Graphics: Chetan Singh

Late-stage start-ups have raised $8.31 billion– around 48.5% of the total capital secured – in the first half of 2022. Next come growth-stage startups, which have raised around $5.87 billion–more than a third of the total, and more than double the funds raised by early-stage startups during the same period.

Graphics: Chetan Singh

In the first quarter of FY23 (April-June 2022), the contribution of late-stage deals fell to approximately 43.6% from 64.8% in the same period last year.

Of the total amount added by investors – $7.1 billion – development-stage startups raised $3.1 billion, growth-stage startups raised $2.81, and early-stage startups raised $1.11 billion.

Graphics: Chetan Singh

In the same neighborhood, 220 pre-Series A deals and 42 Series A deals secured $379.8 million and $555.9 millionrepresenting respectively 5.4% and 7.9% of total fundraising.

In the same period a year earlier, the share of pre-Series A and Series A was 2.1% and 5.4% of the total fundraising of $5.6 billion.

More unicorns, but mega-deals are shrinking

With 18 startups added in the first six months of 2022, the unicorns of india count is 103.

In the first half of 2022, unicorns – old and new – raised over $6 billion across 17 deals, with at least $200 million invested in a single deal. Compared to H2 2021, there is a 48% decline in transactions above $200 million in unicorns; $12.5 billion had been raised in 31 deals of over $200 million each between July and December 2021.

This indicates a substantial decline in the contribution of large investments in unicorns across the ecosystem. In June 2022, two such transactions represented 16.4% of the monthly total, compared to a monthly average of 34.6% in the first half of 2022.

The monthly average of these transactions was 43.9% in the first half of 2021 and 55.6% in the second half of 2021. In July last year, the contribution of 8 unicorn investments, worth 4, $13 billion, had accounted for 75% of that month’s total investment of $5.5 billion.

This means that transactions were more spread out among different startups.

Leaders: Sectors, geographies, VCs

With $3.4 billion in funds raised, fintech was the leading sector, accounting for 19.7% of total investments. Edtech and e-commerce followed with $1.6 billion and $1.1 billion, respectively, with a 9.4% and 6.2% share.

Graphics: Chetan Singh

At $9 billion in the first half of 2022, 52.8% of total funding was raised by Bengaluru-based startups. Delhi NCR was 2nd and Mumbai 3rd, with 21% and 13.5% share.

Graphics: Chetan Singh

Non-metropolitan cities including Jaipur, Ahmedabad, Indore and Chandigarh also made the list of top 10 cities.

Graphics: Chetan Singh

Capital Sequoia and world tiger were the first investors in the first half of 2022, with 39 and 36 transactions respectively, followed by Kunal Shah with 32 investments. In the first half of 2022, the total number of unique investors in the Indian startup ecosystem stood at 1,845.

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