Retail and fintech sectors witnessed a fall of 57% and 41%, respectively, in amounts of funds raised in 2022, according to Tracxn’s India Tech 2022 annual report. Yet, these two sectors alongside enterprise applications remained top fundraisers during the year.
The report also recorded a slowdown in investor exits during the year as valuations realised during exits became subdued. In 2022, 11 startups did their initial public offerings (IPOs), compared to 16 last year.
This year’s top IPOs in the segment include logistics service provider
Delhivery (May 2022), B2B digital payments platform AGS Transact Technologies, and Bengaluru-based
digital certifying platform eMudhra.
The average IPO market cap for companies in the sector slumped to $517 million in 2022 from $4 billion in 2021 when several large consumer internet companies including One 97 Communications, PB Fintech, CarTrade Tech, Zomato, and Nazara Technologies went public.
In terms of exits through acquisitions, the activity remained mostly flat with 229 acquisitions in 2022 against 242 in 2021. The average acquisition price during the current year, however, fell to $77.2 million from $224 million last year.
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Among the top acquisitions of 2022 were
Zomato’s purchase of quick-commerce firm Blinkit, TransUnion’s acquisition of Fintellix, Thrasio buying Lifelong Online,
Razorpay’s acquisition of Ezetap, and
Shiprocket’s purchase of Pickrr.
A trend that has emerged over the last few years is that both Indian new-age companies and legacy corporates are participating in startup M&A activity in a trend that has emerged over the last few years, Tracxn cofounder and CEO Neha Singh said.
“In M&As, earlier there used to be mostly cross-border M&As — Pearson buying TutorVista, Walmart buying Flipkart — but now two new buckets have emerged,” she told ET. “Firstly, Indian new-age companies are buying other companies. For example, Byju’s is making a series of acquisitions. Second is traditional companies like Reliance and Tata are also buying Indian startups, which has also accelerated value creation for investors and the ecosystem.”
Looking Forward
The slowdown in overall funding was primarily driven by a slump in late-stage funding, Tracxn noted. Late-stage funding fell by 45% to $16.1 billion in 2022, it said.
“The number of unicorns that got created has obviously slowed down,” Singh said. “Just in India, the drop is 47% YTD, internationally also, it’s close to 60%. In terms of the time it’s taking for companies to turn a unicorn, the average is around four years from Series A to unicorn,” she said.
ET had on Monday reported that
Indian startups in November raised the highest amount of funding in a month since June when a funding slowdown became palpable and started hitting the financing market. Tech investors had underscored that despite a slight uptick in deal activity, it did not point to a sustained recovery.
Looking ahead, Tracxn’s Singh said it may still be a few more quarters before the ecosystem has seen the bottom.
“One question that’s on everyone’s mind is whether the bottom has come or not,” she said. “When we were looking at the data, it seemed like Q3 of this year was the bottom, and Q4 did not seem much worse off. But we still think it’s too early to say we’ve reached the bottom. While Indian investors are less pessimistic, globally there is still a talk of a recession, and we’ll have to wait for a few more quarters to see if we’ve reached the bottom.”
In order to survive the funding winter, startups are “taking unit economics more seriously”, Singh said. This “has been illustrated through the series of mass layoffs that have occurred this year”, she 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 emphasis good profitability over growth at all costs,” Singh added.
