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The month of May turned out to be red hot for the Indian startup ecosystem as venture capital (VC) funding rose by 29% annually, crossing the $1 billion mark for the first time this year.

The total funding for the month of May was $1.31 billion as compared to $1 billion in May 2023, as per data from Yourstory Research. This sharp increase in VC funding can be attributed to the large deals from Meesho and Pharmeasy.

On a month-on-month basis, VC funding rose by 56% with $848 million for April 2024.

The month of May is also significant as VC funding crossed the psychologically important mark of $1 billion. The last time it touched this figure was in October 2023, where it was $1.2 billion.

This also shows that the funding momentum increases only from large deals, and it has been far and few in between right through the year till now. In the month of May, only three transactions crossed $100 million value–Meesho, Pharmeasy, and Nephroplus.

However, it is unlikely that the large cheques will start flowing into the ecosystem anytime soon as industry observers believe that any significant change in the fund flow may start only in the last quarter of the year.

There has also been a steady increase in the number of deals right through the five months of this year. In fact, the month of May saw the highest number of deals at 121. However, one needs to be cautious about it as higher deal volume does not necessarily mean larger quantum of capital.

It has been a case of lower confidence among the investors of putting higher value cheques into startups as there is still uncertainty how the macroeconomic environment is going to play out. Though, this has had a positive impact on the startups as they are more focused on running sustainable operations with a clear aim on driving profitability. The most recent example of this is OYO, which announced its first ever profit.

In terms of stage-wise funding, the late-stage category received the highest amount at $605 million followed by early stage at $365 million. The early-stage category continues to remain the most active segment for investors as they would not like to miss any potential opportunities in the future.

It is likely that the early stage category will continue to witness sustained interest from the investors.

The sectors which raised the highest amount of funding for the month were led by the healthtech segment, followed by social commerce and fintech.

Among the cities that received the largest quantum of VC funding were Bengaluru, Mumbai, and Delhi-NCR. It has largely been these three cities which are referred to as the startup hubs of the country, though there are other locations like Chennai, Hyderabad, and Pune.

Now, it remains to be seen whether the positive numbers for the month of May will also extend to June. While there is no clarity, the manner in which venture capital firms continue to raise fresh capital provides the confidence that there is much to look forward to for startups as this money will certainly flow back into the ecosystem at one point or the other.