Review of India’s VC market in 2022

In 2022, the Indian venture capital (VC) market took a breat to adjust, after a high level of capital growth the last years.  The increased uncertainty in global macroeconomics, related to inflation and/or recession going forward have made investors more cautious. This has led to less easy capital due to increase in interest rates, and to add on this we have more regional tension than we had for a number of years. The biggest examples are the Ukraine/Russia crises and China/USA tension.

Overall global investments in VC dropped in 2022 to 501 billion USD, from 691 billion USD. Percentage wise the drop was similar in both APAC, US, UK, China and India of a range of 0,6x-0,8x. 

Total deal value in India slowed from $38.5 billion to $25.7 billion from 2021 to 2022, but the number of deals demonstrated resilience and increased from 1545 to 1611.  The decline in funding took place mainly in the second half of 2022 due to the global headwinds, and showed a 70% drop compared to 2021.  The largest drop was found in large ticket size deals which went from 92 in 2021, to 45 in 2022.

According to the report, several investment themes emerged in 2022:

• Moderation in consumer tech deal momentum was reflected across segments such as edtech, online food delivery, B2C commerce, and D2C brands. 2022.

• SaaS saw steady deal momentum over an expansive base from 2021, led by increasing asset depth, proven revenue growth, EBITDA-positive business models.
• Indian fintech sustained momentum—driven by several scale deals focused on lending and fintech infra players (four unicorns) in the first half of 2022.
• Finally, green shoots were visible across emergent sectors: electric vehicle (EV), agritech, and deep tech (space tech, generative AI and climate/clean tech) saw significant interest.

For the second year in a row, India outpaced China when it comes to unicorns. In 2021 India created 44 unicorns and 23 in 2022, compared to China with 42 and 11 respectively. 

For investors, the percentage of large investors went from 25 % in 2021, to 20 % in 2022, mainly driven by lover activity from hedge fund and foreign investors. Further was there also a large decline in exits including VCs, from 14 billion USD to 4 billion USD.

This did not stop the key funds from raising money, and many of the players raised their largest funds to date. Examples of this is Sequoia’s $2 billion India Fund VIII, Lightspeed India’s $500 million India/Southeast Asia-dedicated fund, Fireside Ventures Fund III—$225 million; Blume Ventures Fund IV—$250 million; and Artha Select—$55 million micro VC fund

People are cautious optimistic about 2023, as the regional issues and macro headwinds are likely to continue across the world. The venture market in India seems quite resilient, but larger turmoil would definitely affect both valuation and cash flow. The report expects investors to focus on areas like gaming (hyper-casual games, e-sports), Healthtech, and EV, and AI-led use cases are likely to see interest. SaaS and fintech will remain large areas of interest.

In the longer term, the report expects global investors to remain positive about the India story. A large consumption opportunity, a sizeable workforce entering the formal economy, a digitally enabled population, and a deepening innovation ecosystem will be the key drivers going forward.

Read the full report by downloading it from this link. https://www.bain.com/insights/india-venture-capital-report-2023/