Amid a slowdown in the venture capital inflow in the Indian startup ecosystem, investors are now being more stringent in their analysis and taking longer to close deals, a report by the Economic Times (ET) said. This delay is visible in both late-stage as well as early-stage deals.
According to data by Venture Intelligence (VI), the aggregate venture funding fell from $11.34 billion between January and March 2022 to $2.19 billion in the same period this year. This is also lower than the inflow in the last quarter of 2022 when the funding was $3.17 billion.
In another report by Tracxn, the startup funding fell 75 per cent between January and March as compared to the same period last year. It attributed the fall to rising inflation and interest rates impacting investments significantly.
According to VI, one-fourth of the money invested during the period was due to $500 million raised by Lenskart. PhonePe raised another cumulative $650 million in three tranches.
"Earlier, people used to have diligence ready, and that would be accepted by the incoming investor – all of this is not happening now. Lawyers and third-party firms would be paid to do due diligence quickly but that's not there now. Internal teams doing due diligence are also more cautious now about being caught on the wrong foot, so they might be spending a little extra time," Anand Lunia, founding partner at IndiaQuotient told ET.
"Till last year, every good asset was being chased by several funds, this year that's not the case. Till last year, there was fear of losing out on the deal. Now, they are doing pre-DDs and demanding exclusivity," said Madhur Singhal, managing partner of the financial investor group at Praxis Global Alliance.
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In the coming quarters, according to the report, investments will be driven by MSME lending. Startups will have to focus on core metrics till the slowdown subsides.
