According to the India Venture Capital Report 2023 by Bain & Company and the Indian Venture and Alternate Capital Association, India's venture capital (VC) investments rebalanced in 2022 as a result of growing macroeconomic uncertainty and recessionary fears (IVCA). Deal value in India fell by 33% in 2021-22, from $38.5 billion to $25.7 billion, with the majority of the decline occurring in the second half of the year as macro headwinds intensified. However, early-stage investments maintained their momentum, resulting in over 1,600 VC deals in 2022 and a slight increase in deal volume.

As Per the annual India Venture Capital Report 2023 published by Bain & Company, India created more new unicorns than China for the second consecutive year in 2022. Furthermore, non-metro startups in India received 18% of the funding, and nine of the 23 unicorns that emerged in 2022 came from cities other than the top three metros. This indicates a move towards more democratic funding distribution across the country.

“Overall funding saw a drop in 2022—led by a drop in late-stage large deals. The ecosystem faced foundational shifts as VCs pivoted focus to unit economics and start-ups faced a challenging year with multiple regulatory challenges, lay-offs and corporate governance issues surfacing. Despite the overall softening, a few areas continue to offer hope—SaaS funding remained in line with 2021 highs and early-stage deal-making saw sustained momentum," Arpan Sheth, Partner at Bain & Company, said.

Funding to non-metros increased to 18%, and 9 of the 23 unicorns added in the year came from cities other than the top three metros, indicating a shift to more democratic funding geographically.

“Over the years, the alternative investment asset class has demonstrated remarkable resilience. While 2022 marked a year which heralded PE/VCs to adapt in the face of unprecedented challenges; it also went on to witness record fund-raising and all-time high available dry powder. This only reinforces global investors’ confidence in India to be one of the few bright spots of growth," Rajat Tandon, President, IVCA, said.

Software-as-a-service (SaaS) and Fintech continued to gain traction in 2022, increasing in importance from 25% to 35% of total funding. Funding increased 1.0x in SaaS due to increased asset depth, and 0.9x in fintech due to innovation in the emerging segment.

The overall investment value of EV increased by 2.4x as a result of policy-driven cost competitiveness, growth in adoption driven by innovative business models, and broader interest across the value chain.

While the share of leading funds fell from 25% to 20% as activity from global crossovers and hedge funds slowed, traditional PE funds continued to show interest in select growth equity deals and participated in several $100 million+ megadeals, deepening the pool of available growth capital, according to the report.