The first signs of slowdown in fund raise by the Indian startups ecosystem is finally showing up. According to KPMG’s Venture Pulse report, VC investment in India slowed somewhat in Q1CY22 relative to record totals during the second half of 2021. VC investment in Q1CY22 reached $7.9 billion across 300 deals, said the report.
Despite a softer Q1 in terms of fund raise, VC investors continued to show interest in a wide-range of sectors, including e-commerce, fintech, edtech, social platforms, and gaming. The gaming sector in India, in particular, has seen a significant evolution over the last two years, with more companies now focusing on the development of India-specific gaming content. This is only helping to drive interest and investment in the space. The rapid maturation of key sectors in India, combined with the significant number of market entrants, is starting to drive M&A activity as competition for market share heats up. In the social media space,
Q1CY22 saw dominant market player ShareChat acquire a short video app from its rival MX for approximately $700 million. Looking forward, sectors like edtech and food delivery will likely also see consolidation.
India attracted three of the largest rounds during Q1CY22, with an $800 million raise by BYJU's, a $700 million raise by Swiggy, and a $478 million raise by DailyHunt.
Nitish Poddar, partner and national leader – Private Equity, KPMG in India said, “One of the sectors poised to attract big VC investment in India in the near future is agritech. While right now it is mostly smaller players involved in the space, ultimately it has the potential to become one of the biggest VC plays in the country. Almost half of the population is engaged in farming and agriculture-related activities, so any technologies that can help improve yields, make farming processes more efficient, and increase profits to farmers have enormous potential.”
In India, while investors are expected to grow more cautious given rising commodity prices, increasing interest rates, and heightening global geopolitical uncertainty, the amount of money available in the market will likely help moderate the impact heading into Q2CY22, said the report.
Globally too the softness was evident. Global VC investment during Q1CY22 reached $144.8 billion, higher than all, but the four consecutive record-breaking quarters seen during 2021 – making for a robust result, despite the decline, according to the KPMG’s report.
While total investment remained strong, the number of VC deals dropped considerably – from 10,775 deals in Q4CY21 to 9,349 in Q1CY22 – as geopolitical and economic factors combined to create a storm of uncertainty in the market. Both the US and Asia markets saw a drop in VC investments, only Europe managed to show a growth.
Despite the significant uncertainty plaguing the VC market globally, VC investment is expected to remain relatively stable in Q2CY22 thanks to a significant amount of dry powder. VC investors will likely continue to be cautious, focusing on late stage companies and proven bets. This could cause concern for startups looking for first-time financing or at early stages of their growth trajectory.
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