Venture capital investments down 70% across globe in Q1CY23: KPMG study

Despite the current slowdown, macro factors in India remained stronger than elsewhere, driving optimism that the country will see a bounce back in VC investment in H2 of 2023

It is not just in India where venture capitalist (VC) investment has been hitting a low. Global VC investments fell to $57 billion in Q1 of CY23, lower than the $200 billion raised in the same quarter a year back, said the first quarter KPMG’s Venture Pulse Q1 2023.

Despite the current slowdown in VC funding, macro factors in India remained stronger than in other regions, driving optimism that the country will see a bounce back in VC investment in the latter half of 2023.

VC investment in India remained relatively soft in Q1 of CY23 as VC investors intensified their scrutiny of potential deals. While FOMO drove a lot of VC investment in India in 2021 and early 2022, VC investors have since enhanced their focus on startup performance and profitability.

Fintech continued to drive many of the largest deals in India in Q1CY23, including a $445 million raise by PhonePe, a $218 million by NoBroker, a $200 million by KreditBee, and a $150 million by Insurance Dekho. India also saw growing interest in agtech and gaming during the quarter. After a long period of euphoria, interest in edtech in India died down considerably during Q1CY23.

“The biggest change in India is that the euphoria for deals has died down. FOMO has gone. The drying up of big-ticket deals has had an outsized impact on our total investment numbers. But despite the visible decline, it’s important to know that a lot is still happening in India. The macros here are still very good,” said Nitish Poddar, Partner and National Leader, Private Equity, KPMG in India.

He added, “We’re still seeing a lot of pre-Series A funding. And we’re seeing a lot of new micro funds being raised in the country—funds under $100 million with cheque sizes of $1–5 million.”

The report added that while VC investors continued to have a large contingency of dry powder available to them as a result of the robust funding environment in the US during 2021 and 2022, Q1 of 2023 saw investors showing significant caution with respect to their investments.

Deal speeds slowed significantly as many VC investors conducted additional due diligence on potential deals in light of current market challenges and the ever-changing market conditions. In particular, VC investors enhanced their scrutiny of the valuations of startups looking to attract funding, their profitability, and the long-term sustainability of their business models. VC investors in the US also held off from supporting first time deals during the quarter, with many focusing primarily on companies within their existing portfolios.

Total fund raise QoQ ($bn)

 

	Q1	Q2	Q3	Q4
2021	$5.3	$5.6	$15.7	$12.2
2022	$9.3	$8.1	$3	$2.8
2023	$2.1

Source: Venture Pulse Q1, 2023