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Indian startups have raised a total of $24.7 billion so far this year, a 34% fall from the $37.2 billion they raised in the corresponding period in 2021, a report by market intelligence platform Tracxn revealed.

Tracxn Geo Annual Report: India Tech 2022 attributed this drop to a decline in late-stage investments, which fell 45% to $16.1 billion in the Jan–Nov period from last year. Seed-stage rounds also dropped 38% in the same period. 

Neha Singh, Co-founder of Tracxn, said, “Rising interest rates and fears of a global recession have led to investors becoming more risk-averse, continually slowing down the funding momentum in the Indian startup ecosystem. The funding winter, which began in Q4 of 2021, will persist in 2023 as well.”

The number of larger ticket (over $100 million) funding rounds has also dropped to 55 from 85 last year. BYJU’S raised $1.2 billion in two $100 million plus rounds, followed by VerSe Innovation and Swiggy, which have raised $805 million and $700 million, respectively, in 2022 to date.

“In order to survive the drought, startups are taking unit economics more seriously, which has been illustrated through the series of mass layoffs that have occurred this year,” she added.

The report added that in 2022, enterprise applications, fintech, and retail emerged as the top-performing sectors in funding. But fintech and retail have seen a drop in funding of 57% and 41%, respectively, from last year, showing that even they are not immune to the effects of the funding slowdown.

The fintech sector has been hit hard by an RBI policy that prohibits non-bank financial institutions (NBFIs) from loading their prepaid instruments using credit lines, hurting the business models of companies like Slice and Uni Cards. Furthermore, with major volatility in asset prices this year, crypto exchanges across the globe, as well as in India, are facing operational difficulties.

Neha said, “Although we are currently experiencing a slump, the situation is prompting startups to establish clearer and more sustainable paths to growth, as investors’ evaluation metrics begin to emphasise profitability over growth at all costs.” 

Edtech has also seen a drop in 2022, with funding falling by 39%. Although the sector is experiencing a slowdown, 70% of funding in 2022 is from five over-$100 million rounds raised by BYJU’S, LEAD School, upGrad, and PhysicsWallah.

The report also highlighted the 22 startups entering the unicorn club ($1 billion+ valuation)—as compared to 46 in the previous year—11 exits occurring through IPOs, the city of Bengaluru leading the maximum total funding raised, and the most active investors of the year being LetsVenture, AngelList, and Y Combinator.