Funding winter continue to haunt startups in 2023
Fund managers forecast capital flow revival by end of 2023 when global economy is expected to somewhat overcome the challenges arising from high inflation
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- PE, VC funds in 'wait and watch' mode for better valuations
- Fund houses including Sequoia, Accel raised new funds targeted at startups last year
- Sentiment in tech world remains subdued amid mass layoffs
Bengaluru: Indian startups may not see an end to the ongoing funding winter despite a record amount of funds raised by venture capital (VC) and private equity (PE) firms last year.
Fund managers are of the opinion that capital flow to startups is likely to begin towards the end of the year when the global economy is expected to somewhat overcome the challenges arising from high inflation.
"Funding winter is likely to continue for next one year. As the easy liquidity is gone with central banks tightening rates, people are risk averse. In the startup world, many unicorns are unable to raise money and some of those may die too. Despite so many new funds getting raised, there is no hurry to deploy that capital as they have time to invest and these funds will get better deals if they wait. So, these fund houses will be in no hurry to deploy,
- V Balakrishnan, Chairman, Exfinity Ventures, a venture capital fund, and former CFO of Infosys, told Bizz Buzz.
Last year, around $18 billion worth new funds were raised from investors- known as limited partners in PE and VC world- for investing in domestic startups. This was three times as compared to its previous year.
Many marquee fund houses raised millions of dollars to deploy during this period. For instance, Sequoia India and Sequoia Southeast Asia closed one of the largest rounds worth $2.85 billion in 2022. Out of the total funds raised, around $2 billion was earmarked to be infused in seed-stage and growth-stage startups, while the rest $850 million has been carved out for ventures based in the South-East Asia (SEA) region.
Similarly, the Silicon Valley-based VC firm secured $650 million of funds from investors, which was its seventh fund- the Accel India VII. This sector-agnostic fund has a mandate to infuse capital in early-stage startups operating in India and Southeast Asian regions. The Singapore-based VC firm closed its fourth fund worth around $600 million last year. The sector-agnostic fund comprises $450 million in the main fund with the rest $150 million as additional commitments.
Despite such huge capital raised during last year, most fund houses are not keen to deploy capital owing to recessionary fears. More than 20,000 employees of several startups lost their jobs so far starting from March last year with many unicorns firing employees in their bids to conserve cash.
Byju's, Ola, Oyo, Meesho, Unacademy, Vedantu, ShareChat, Swiggy, Dunzo, Rebel Foods, and many others laid off staffers last year that continues well into 2023.
Mass layoffs in technology giants including Google, Microsoft, Twitter, Meta have worsened the sentiment among investors which are in a 'wait and watch' mode before committing new capital towards startups.
Funding winter is likely to continue for next one year. As the easy liquidity is gone with central banks tightening rates, people are risk averse. In the startup world, many unicorns are unable to raise money and some of those may die too. Despite so many new funds getting raised, there is no hurry to deploy that capital as they have time to invest
- V Balakrishnan, Chairman, Exfinity Ventures and former CFO of Infosys
