As cost of capital rises, VC funding for new-age firms drops to $26 bn

Venture capital (VC) funding for Indian startups has taken a sharp cut. It dropped to $25.7 billion in 2022 from $35.8 billion in 2021 as the global economy experienced turbulence. The global economic downturn has made investors reconsider their commitments towards the deployment of capital into new-age firms, said a report published in The Times of India (TOI), which quoted a study conducted by Bain and India Venture and Alternate Capital Association (IVCA).

 

The cut has impacted the high cash-burn consumer technology businesses the most. The report said that while small-sized deals

sustained momentum, big-ticket deals worth over $100 million, which often depended on external funding, have taken a major hit.

 

In 2021, the number of large deals stood at 92; it came down to 48 in 2022, the report added.

 

Several unicorn startups like Byju's, Unacademy, and ShareChat saw their valuations skyrocket as the situation around the pandemic improved. However, as they struggled to raise funds, these companies resorted to cost-saving measures such as cutting jobs.

 

Quoting the Bain report, TOI reported that as many as 20,000 employees working in new-age firms and startups lost their jobs in 2022. The troubles have been accentuated by the continuous hikes in interest rates by global central banks. Interest rate hikes are being undertaken to tame high inflation. However, it has resulted in a higher cost of capital, which has impacted VC funding.