The $100 Mn Chase: Mega Deals Dwindle In 2023, Recede To Pre-2018 Levels

Mega deals ($100 Mn and above) fell with a thud during the year to 23 from 60 in 2022 and 109 such deals in 2021 The top 10 mega deals in 2023 accounted for more than 42% of the total capital inflow into the Indian startup ecosystem and included names like PhonePe, Lenskart, Flipkart, DMI Finance, Ola Electric, et al. The fintech sector continued to be the darling of the investors as it accounted for more than half, 12 to be precise, of the total mega deals witnessed by the ecosystem in 2023 The year 2023 embraced corrections as the Indian startup ecosystem came to terms with the harsh realities of the extended funding winter, layoffs and wary investors. Funding taps ran dry across new-age sectors and ventures as investors tightened their purse strings harder than ever.

As a result, total startup funding receded to a seven-year low of $10 Bn in 2023 , even lower than the $13 Bn that was raised in 2017. The contrast becomes even sharper when we compare the data with 2022 and 2021 when Indian startups raised $25 Bn and $42 Bn, respectively. While seed-stage companies were the worst hit, equally distraught were some of the biggest names in the Indian startup ecosystem, who were experiencing diminishing investor interest at every step of the way.

And their worries were probably for a reason. Well, much to their chagrin, late-stage funding cratered 60% year-on-year (YoY) to $5. 6 Bn in 2023 and the deal count withered 57% YoY to 83.

Unfortunately, mega deals ($100 Mn and above), too, fell with a thud during the year to 23 from 60 such deals in 2022 and 109 deals in 2021, as per Inc42’s Indian Tech Startup Funding Report 202 3. Salvaging the reputation were names such as PhonePe, Lenskart, Flipkart, DMI Finance, Ola Electric and the like that raised some of the biggest rounds in 2023. Not to mention, the fall in mega deals has slowed down the country’s potential of minting unicorns, which we already witnessed in 2023 — just two unicorns were born in the year .

Imperative to highlight that late-stage deals accounted for 70% of the total capital inflow into the Indian startup ecosystem in 2022 and churned 22 unicorns. The fintech sector continued to be the darling of the investors as it accounted for more than half, 12 to be precise, of the total mega deals witnessed by the ecosystem in 2023. Close on the heels were ecommerce startups, which secured five mega deals, while enterprise tech took the third spot on the podium with four such deals.

Ironically, even though deeptech and cleantech stood at the bottom of the ladder with just one deal each, it was truly a watershed moment for the sectors. It shows that investors have now started to recognise the true potential of these two mushrooming new-age sectors. Moving on, digital payments giant PhonePe raised $850 Mn in multiple tranches throughout the year to fuel its growth ambitions ahead of its listing on the Indian bourses.

Other fintech heavyweights who enjoyed mega deals in the year of the extended funding winter included names like lending tech startup DMI Finance ($400 Mn round), fintech SaaS giant Perfios ($229 Mn) and insurtech player InsuranceDekho ($210 Mn). “Relative to other sectors like SaaS which suffered from multiple headwinds from decline in global customer traction, some of the established fintechs showed high growth combined with a convergence to profitability, and investors chose to fund them,” said general partner at VC firm WEH Ventures, Deepak Gupta. From the ecommerce arena, Lenskart and Flipkart took the pole position on the charts as both raised $600 Mn each with investors making a beeline.

While B2B ecommerce major Udaan raised $340 Mn in a mega round towards the fag end of 2023, quick commerce platform Zepto became the second unicorn of 2023 after bagging $231 Mn from a clutch of investors. IPO-bound Ola Electric, too, made a big splash in the Indian startup arena after it secured a massive $384 Mn round from Temasek. Alongside, Builder.

ai made a mark in the enterprise tech space with its $250 Mn fundraise, and robotics startup Grey Orange bagged $135 Mn in 2023. Behind these big bucks was a flurry of foreign investors who invested in some of the biggest names in the Indian startup ecosystem. Foreign investors continued to chokehold late-stage deals in 2023, be it General Atlantic, Investcorp, DST Global, Lightspeed India, or the like.

US retail giant Walmart alone led two of the biggest mega deals this year – PhonePe’s $850 Mn and Flipkart’s $600 Mn rounds. Barring names such as Kedaara Capital, TVS Capital and a few others, domestic capital was conspicuously missing from the top 10 mega deals. Interestingly, none of the investments made by big names such as Peak XV, Accel India, SoftBank and Tiger Global made it into the top 10 mega rounds during the year.

On the contrary, sovereign wealth funds such as ADIA, QIA and Temasek participated in droves in mega rounds, picking up stakes in some of the biggest names in the Indian startup ecosystem. Meanwhile, SoftBank was busy booking profits and offloading a good chunk of its stake in Indian listed startups to shore up returns. Now, as we stand on the cusp of 2024, much appears to be in store for the world’s third-largest startup ecosystem .

Even though the capital drought is expected to seep into 2024 as well, industry experts see no dearth of funds for late-stage startups with sustained revenue growth and profitability. According to Manish Maryada, the cofounder and CEO of fintech startup Fello, 2023 was just a glimpse of VCs’ changed investment strategies. Concurring with this, investment firm FAAD Network’s cofounder and director Dinesh Singh told Inc42 that focus on profitability and strong unit economics will attract larger investments in 2024.

A case in point is the names like GreyOrange, Udaan, Aye Finance, and InCred, which raised copious amounts of capital in the last weeks of December 2023. A common theme among all these late-stage companies was that they had streamlined their operations or were inching closer to profitability. However, investors will continue to tread warily in the year ahead.

They are expected to keep a close eye on meticulous corporate governance guardrails, strong compliance records, credibility of founders, and corporate culture, among other things. Chiming in, JITO Incubation and Innovation Foundation’s (JIIF’s) chairman Rajat Mehta said, “The outlook for mega deals in the startup landscape in 2024 will be shaped by a range of factors, including economic conditions, regulatory dynamics, and emerging market trends. The general central elections in India and the US will play a major role and will lean more towards creating an extremely positive sentiment for mega deals.

” With much in store for the homegrown new-age tech companies in 2024, all eyes will now be on whether mega deals resuscitate next year or will the funding winter permeate deeper, chilling the Indian startup ecosystem to its spine. [Edited by Shishir Parasher].