Indian startups have been hit hard by a decline in funding, as the country’s economic growth has been hampered by the COVID-19 pandemic. According to a new report, the decline in funding has continued into 2021, with the first quarter seeing a drop of 29% in total funding compared to the same period last year.
The report, compiled by industry data provider Tracxn, revealed that Indian startups raised a total of $3.4 billion in Q1 2021, down from $4.8 billion in Q1 2020. This is the lowest quarterly funding figure in the last three years. The report also showed that the number of deals decreased by 22%, from 321 in Q1 2020 to 249 in Q1 2021.
The decline in funding has affected startups across all sectors. The report showed that the consumer services sector, which includes companies in the food delivery and e-commerce spaces, was the hardest hit, with a 47% drop in funding compared to Q1 2020. The fintech sector, which had been a bright spot for Indian startups in recent years, also saw a decline of 24% in funding.
The report noted that the decline in funding was partly due to a lack of mega funding rounds. In Q1 2021, there were only three funding rounds of more than $100 million, compared to seven in the same period last year. However, the report also pointed out that the average deal size increased by 16% to $13.6 million, indicating that investors are still willing to bet on promising startups.
Despite the decline in funding, Indian startups have continued to attract interest from international investors. The report showed that 41% of the funding in Q1 2021 came from foreign investors, up from 33% in the same period last year.
Experts believe that the decline in funding is likely to continue in the short term, as the COVID-19 pandemic continues to impact the Indian economy. However, they also point out that the pandemic has created opportunities for startups in areas such as healthcare and edtech, which could attract more funding in the coming months.
Overall, the report suggests that Indian startups will need to focus on building sustainable business models and attracting investors with a long-term view, rather than relying on short-term funding boosts, in order to weather the current funding decline and emerge stronger in the post-pandemic world.
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