Ecomm, edtech see sharpest drop as startup fund raise falls 33% in 2022: PwC

• Even as funding activity slowed down in 2022, inflows into early stage startups went up 12%.
  
  
• Funding to almost all sectors declined with the exception of SaaS and media and entertainment.
  
  
• Funds received by e-commerce (B2C) went down by a massive 71%. Ecommerce (B2B) also saw a 54% drop in funds received.
  
  
• Globally, VCs are sitting on dry powder to the tune of $590 billion.
  

Funds raised by Indian startups fell by 33% to $23.6 billion in 2022 against $35.2 billion raised a year before, according to a PwC India report, Startup Deals Tracker-CY22.

The number of startups that raised funds fell moderately by 8% to 1,021 and the average ticket size of deals fell to $23 million from $32 million a year before.

Investors also seem to have shifted focus to early-stage startups, where funds that flowed in increased by nearly 12%.

“Despite the funding slowdown, some areas like SaaS and early-stage funding have remained upbeat. With significant dry powder waiting to be invested, it seems likely that the funding scenario will begin to normalise after two-three quarters. Until then, however, many startups are using this time to tighten operating models and optimise their cash runway by deferring discretionary spends and investments,” said Amit Nawka, partner- deals & India startups leader, PwC India.

The inflows into late-stage startups witnessed a 52% decline, as per the report which added that 21 startups attained unicorn status during in the year.

SaaS remains top pick for investors

Funding to almost all sectors declined with the exception of SaaS and media and entertainment. SaaS, which contributed to a quarter of the total funding activity, witnessed an increase of 20% in funding values. As 14 SaaS companies raised an excess of $100 million during the year, it also pushed up the average ticket size of deals in this segment to $4 million.

Fintech sector contributed to 20% of total fund inflow in 2022. But as compared to the year before, funding activity declined by 40%.

The sectors that saw the steepest decline in funds is e-commerce (B2C) where fund inflows went down by a massive 71%. Ecommerce (B2B) also saw a 54% drop in funds received. Funds to direct-to-consumer (D2C) startups declined by 26%, in spite of four companies raising over $100 million each during CY22.

As physical schools and colleges reopened, edtech which gained prominence during the pandemic lost its sheen. Inflows in edtech startups reduced by 58% in 2022.

Adding to that, the number of M&A deals involving startups also went down 17% in 2022, at 246 deals. “E-commerce and D2C (61) and SaaS (60) witnessed the highest number of M&A transactions in 2022. The year witnessed 199 domestic, 21 inbound and 26 outbound deals,” the report said.

VCs pull back from the markets

The reduction in fund activity is an indication of cautiousness among investors as they continue to sit on dry powder to the tune of $590 billion, globally. Dry powder is unallocated funds that a PE or VC has, on hand. A large chunk of this dry powder were funds committed in 2022 and 2021.

“The build-up of dry powder is due to a market pullback by VC funds that are picky about their investments. The focus is on companies that have strong unit economics and a path to profitability,” the report said.

PwC also adds that the amount of dry power that VCs are sitting on shows that the market could see strong investment cycles ahead.

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