VC funds reduce number of deals with start-ups by a fifth in 2022: Study

Total investment in such firms in India stood at $23 bn in 2022, compared to $35 bn in 2021

At least 14 of the top 20 venture capital (VC) and private equity (PE) funds in India reduced new deals with start-ups by a fifth in 2022. The number fell from 572 in 2021 to 456 this year, according to data from Venture Intelligence.

Sequoia Capital, a leader in investments, retained its top slot but its number of deals fell from 110 in 2021 to 70 this year. Tiger Capital, Accel India, Matrix Partners too reduced new deals (see chart).

Companies not in the list of 20 reduced new deals as well. Softbank, a favourite among start-ups, saw its deal number fall sharply from 18 in 2021 to just four this year. Lightspeed Ventures, ranked 23rd, saw its number of deals falling from 37 in 2021 to just 16 in 2022.

The impact of investors tightening their belts is evident across start-ups: more so in the growth sectors of ecommerce, edtech and healthcare. Investment in these sectors more than halved in 2022 over last year.

The edtech space saw VC investments fall from $4 billion in 2021 to a mere $1.9 billion in 2022 (number of deals reduced from 97 in 2021 to 60 in 2022). In e-commerce, investments fell from $10 billion in 2021 to just half at $5 billion in 2022 (deals fell from 210 in last year to 147 in 2022).  

Heathcare, which attracted interest during the coronavirus, saw funding reduced from $2.7 billion in 2021 to only $1.3 billion in 2022. The food sector saw a 40 per cent fall in investments in the same period. Fintech, a growth sector, had investments falling by 36 per cent over last year.

PEs and VCs collectively invested $23 billion in Indian start-ups in 2022, falling almost 35 per cent from $35 billion in 2021. Venture Intelligence considered all fund rounds—from seed to Series F investments and late-tech financing—in companies less than ten years old to calculate the number.

As the number of deals fell, their average ticket size reduced 26 per cent: from $29 million in 2021 to $21 million in 2022, according to Venture Intelligence.  

There are outliers in this grim scenario. VC/PE support continues for enterprise software, where funding was up 25 per cent, and artificial intelligence, machine learning and Web 3 services, where it was up by more than 90 per cent from a low base last year.

Among the new pack of VCs one is an outlier: Pune- and San Francisco-based Better Capital, a pre VC stage investor did 53 deals this year compared to there last year. Reports said it has some 200 companies in its portfolio. Two of them, Slice and Open, are already unicorns.

Infoedge, Blume Ventures, Westbridge and Sixth Sense and Kalari Capital undertook the same number of deals as last year, bucking the trend followed by other VC firms.