Funding reports

Funding To VC-Backed India Startups Falls To Lowest Levels Since Early 2020

money bill picturing india and 2022

While seemingly everywhere is seeing a significant pullback in venture capital funding, some countries are seeing a much more precipitous dropoff.

India—which like many regions had a banner year in 2021—is one of those areas seeing the most pronounced decline.

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Funding in India dropped to its lowest point since the first quarter of 2020. VC-backed companies took in $2.9 billion in the third quarter of this year, a massive 66% drop from the previous quarter and a mind-blowing 81% drop from the same quarter last year.

Deal flow did not see nearly as major a dropoff, but numbers were still down. Just more than 420 deals were announced in Q3, a 12% drop from the second quarter and a 32% decrease from the same period last year.

“The funding environment globally has weakened significantly, and India is no different,” said GV Ravishankar, managing director at Sequoia Capital India

“We have seen several hedge funds and global investors without local/regional presence recede from the market to focus on core markets,” said Ravishankar, adding the dramatic drop should also be seen in the context of a very exuberant market in 2021.

Asia’s issues

To that point, India certainly is not alone in the dropoff. Venture funding in Asia sank to its lowest level in 10 quarters, mirroring what is going on in the public markets, and investors slowed funding to private companies with only $21.2 billion for startups in the region. That is a 26% decrease from the second quarter and an astonishing 56% decrease from the third quarter of last year. The total funding amount marked the lowest investment since the first quarter of 2020, when the world was just entering into a pandemic.

Many likely would point toward China for such a decline, especially with the regulatory crackdown on tech firms there. While China’s numbers have dipped significantly quarter to quarter—Chinese startups saw only $9.6 billion invested last quarter, compared to $18.5 billion in the same quarter of 2021—India took a more pronounced decline in venture funding by percentage.

“There has been a significant pullback from the large crossover funds—Tiger Global, SoftBank, etc.,” said Shwetank Verma, co-founder of New Delhi-based Leo Capital. “These funds typically led later-stage rounds with significant checks, so their retrenchment shows up as a big drop in the amount of funding.”

The numbers bear out that large late-stage and growth rounds—where crossover funds normally participate—did take the biggest drop in India during the third quarter. The quarter saw only $1.5 billion go to Indian startups for those late, large rounds—a 76% drop from the second quarter, which saw $6.2 billion invested in such rounds.

Even more dramatically, the Q3 numbers represent a 89% decline from $13.6 billion invested in Q3 2021.

Those numbers are not shocking, as late-stage and growth rounds are also down in the U.S. and globally, but it does show the trend is affecting areas with even less mature tech startup ecosystems.

Ravishankar said growth and late-growth rounds are being the most impacted, due to the IPO windows being shut and therefore companies don’t have near-term liquidity prospects. 

That is not to say there were not some large rounds in the region in the third quarter. Edtech giant upGrad closed a venture round worth approximately $210 million in August and fintech platform FPL Technologies raised a $100 million Series D, minting it as a unicorn in July.

However, such large deals have become few and far between as investors become more wary of spending big money in large valuations and large crossover investors pull back.

Early and seed

All that is not to say earlier rounds have not been affected.

Seed and angel funding—which totaled about $400 million in Q3—in the region fell about 16% quarter to quarter and 4% year to year.

Early-stage funding hit approximately $1 billion in the third quarter, falling 47% from the second quarter and 32% from Q3 2021.

“Early stage seems to have recovered in the last few weeks and we are seeing some buoyancy return here,” Ravishankar said.

What’s next?

The current downturn has affected most sectors, including SaaS, fintech and B2B, Ravishankar said. 

But certain sectors like edtech have been even more impacted as a result of the strong comeback of offline markets,” Ravishankar said. “On the positive side, there is more demand for consumer and financial services businesses that are profitable and compounding.”

Just like in the U.S., investors are eyeing strong cash flow and profitability or at least a road map to it.

“The downturn has affected all companies, but companies in spaces that have high growth but unclear monetization” have been hit hardest, Verma said. “Three words—path to profitability—have made a resurgence.”

While investors are not expecting that to change in the near future and believe the fourth quarter may resemble the currently ended third, some light remains at the end of the tunnel.

“We expect the rest of the year to continue to be slow and all eyes are on the actions of the U.S. Fed,” Ravishankar said. “We are cautiously optimistic about 2023 as there are several funds that have raised significant capital in 2021/2022 and they would look to pick interesting opportunities in the market.”

Verma adds that while more short-term pain is likely, from a longer-term point of view this is a great time to be investing.

“We will also see more (local institutions and families) bring later-stage capital to the table, making for a more resilient ecosystem in future,” Verma said.


The data contained in this report comes directly from Crunchbase, and is based on reported data. Data reported is as of Oct. 3, 2022.

Note that data lags are most pronounced at the earliest stages of venture activity, with seed funding amounts increasing significantly after the end of a quarter/year.

Please note that all funding values are given in U.S. dollars unless otherwise noted. Crunchbase converts foreign currencies to U.S. dollars at the prevailing spot rate from the date funding rounds, acquisitions, IPOs and other financial events are reported. Even if those events were added to Crunchbase long after the event was announced, foreign currency transactions are converted at the historic spot price.

Glossary of funding terms

Seed and angel consists of seed, pre-seed and angel rounds. Crunchbase also includes venture rounds of unknown series, equity crowdfunding and convertible notes at $3 million (USD or as-converted USD equivalent) or less.

Early stage consists of Series A and Series B rounds, as well as other round types. Crunchbase includes venture rounds of unknown series, corporate venture and other rounds above $3 million, and those less than or equal to $15 million.

Late stage consists of Series C, Series D, Series E and later-lettered venture rounds following the “Series [Letter]” naming convention. Also included are venture rounds of unknown series, corporate venture and other rounds above $15 million.

Technology growth is a private-equity round raised by a company that has previously raised a “venture” round. (So basically, any round from the previously defined stages.)

Illustration: Dom Guzman

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