The Investment Juggle: Seed-Stage Dominance and Late-Stage Leaps

Are you curious about the pulse of India's tech start-up realm? Is funding winter over? How startup funding has performed in Q2 CY2023? Check out this startup story to know more about it!

Shreshtha Verma
02 Aug 2023
NASSCOM Report Investment Realities Seed Stage Dominance Late Stage Leaps

TICE Creative Image

In a rapidly evolving digital landscape, where innovation and disruption are the buzzwords, the dynamics of the Indian tech startup ecosystem are under constant scrutiny. The recently released "Tech Startups Quarterly Investment Factbook Q2 CY2023" by NASSCOM in collaboration with Zinnov has provided a comprehensive snapshot of the funding trends and key data points that shape the journey of these burgeoning enterprises. As the dust settles on the second quarter of the calendar year 2023, let's have a look at the analytical highlights that illuminate the path ahead.

Funding Winter Persists, Yet Green Shoots Emerge

The funding climate for Indian tech continued to experience the chill of the 'funding winter' during Q2 CY2023, even as a glimmer of hope appeared on the horizon. Despite a modest 4% quarter-on-quarter (Q-o-Q) uptick, the total funding in the quarter stood at US$1.31 billion, presenting a significant 76% year-on-year (y-o-y) decline. The number of deals recorded in this period painted a similar story, exhibiting a 23% decrease Q-o-Q and a substantial 58% plummet y-o-y.


A Silver Lining Amidst the Gloom

Amidst these challenging numbers, certain indicators suggested a potential turnaround. Seed-stage funding emerged as a beacon of hope, witnessing an impressive 60% growth Q-o-Q. Late-stage funding, which had been evading the limelight, made a striking comeback with a formidable 50% surge from the previous quarter. What's particularly noteworthy is the distribution of late-stage deals, with a remarkable 92% attributed to mature tech startups, as opposed to 55% in the preceding quarter (Q1 CY2023).


Sectoral Impact: Pioneering New Frontiers

The funding data also revealed intriguing insights into the nascent verticals and technological domains making waves in the start-up ecosystem. The automotive and energy & utilities verticals emerged as robust contributors, accounting for over 40% of the total funding pie. Within this spectrum, Software-as-a-Service (SaaS) startups stole the spotlight in seed-stage deals, commanding a substantial 30% share.

Rekindling the flame of innovation, the report highlighted a resurgence in Deep Tech investments, with a notable 7% Q-o-Q increase in funding. This signals a renewed interest in cutting-edge technologies that hold the promise of transformative changes across industries.

Unveiling Key Trends: Funding Modes and Growth Trajectories

A captivating subplot in the narrative is the dynamic interplay between debt and equity funding. The report unveiled a reversal in the trend, where the debt vs. equity funding gap, which had been narrowing with a 70% reduction in the past year, now appears to be widening again.

Furthermore, a heartening trend emerged as revenue and earnings before interest, taxes, depreciation, and amortization (EBIDTA) exhibited positive growth trajectories across traded startups. This upward trajectory not only underlines the resilience of these enterprises but also underscores their potential to be sustainable businesses in the long run.

Navigating the Uncharted Waters

The "Tech startups Quarterly Investment Factbook Q2 CY2023" report presents a nuanced overview of the Indian tech start-up landscape, painting a picture of both challenges and opportunities. While the funding winter's persistent grasp continues to be felt, the sector exhibits glimmers of optimism, with green shoots of growth in seed-stage and late-stage funding. The ascension of nascent verticals and the rekindling of Deep Tech investments underscore the adaptability and dynamism of this ecosystem.

As the tech start-up fraternity navigates the uncharted waters of the digital age, these insights serve as guiding stars, helping stakeholders make informed decisions, fuel innovation, and shape the future of the Indian tech start-up ecosystem.