Venture capital inflow drops by 20%; Investors delay startup deals

Aggregate venture funding fell to $ 2.19 billion in January-March quarter of 2023 which is 20% lower than the previous quarter, October to December, when startups received funding of $3.17 billion. In fact in the year ago period, January - March of 2022, startups received $11.34 billion, as per an Economic Times report.

The reason for this fall in funding, is that risk capital investors are being more rigid in analysing the business model and are delaying to close deals.

According to ET, nearly a fourth of the money invested in statups in the Jan-March 2023 quarter is attributed to the $500 million raise announced by Asia’s largest eyewear retailer, Lenskart. Walmart-owned PhonePe also raised a cumulative $650 million in three tranches as a part of its $1 billion fundraise round.

Investors are being more cautious and are taking more time to evaluate a company's business model. Disparity in the valuations expectation between the founders and the investors is also an important factor to delay deal closing.

Experts say that these extended timelines was in place during the years 2018-2019. Indian startups received a windfall of investment in 2021, due to rise in demand for digital services and heightened money supply globally.

As per ET, in the boom years, investors were engaged in quick-fix deal making to prevent losing out on good assets. This year, with VC firms taking their foot off the gas pedal, some funds are asking for more data and negotiations are also taking more time.

According to Venture Intelligence data, during January-March of 2023, Seed and Series A investment rounds saw $712 million in funding, less than half of the $1.92 billion recorded in the same quarter last year. The number of deals also fell from 248 to 115 during this period.

Meanwhile, the investors have rounded up on certain sectors that have the potential to be profitable. A report by Praxis Global Alliance points to sectors such as health-tech, climate-tech and financial services as the breakout sectors in 2023, as far as investments are concerned.