Has the Start-up bubble dried up?

According to a?Crunchbase?report, the global venture capital (VC) investment amounted to a staggering $643 billion in 2021 with the global VC funding dropping by ~$15 billion (month-on-month basis) in Feb 2021. However, the funding corpus grew by ~$10 billion on a year-on-year basis. It was also reported that early-stage funding and late-stage funding fell by ~17% and ~19% respectively. Meanwhile, the seed-stage funding witnessed a small spike of ~3%.

Last March,?multiple consulting firms had released their reports, warning?startups?of a?slowdown?in venture funding and how they should deal with it. That leaves us with an important question - "Has the start-up bubble really dried up?".

If we closely observe the deals that were executed last year, we can clearly notice a trend where the growth market has pretty much died in early 2022 and the market is seeing a marked slowdown in Series A and Series B funding across the world. The only exception seem to be the startups at the seed funding stage and crypto-based startups which have managed to stay afloat.

So what is happening to the money that VCs have raised already?

According to Tiger Global Management (a US based investment firm) the pullback has more to do with Limited Partners (LPs) who pour capital into VC funds rather than the VCs themselves. With VCs being forced to cut back their investments, they have narrowed their bets to “safer” companies instead of investing in new startups which take on higher risk. This slowdown in 2022 could also be a natural correction after last year’s explosion in VC investments.

What’s happening in India?

Last year, VC firms invested ~$39 billion in Indian startups. According to a?Venture Intelligence?report, the startups have already picked up ~$10 billion within the first quarter of FY23, which is higher than the $5.7 billion which were raised last year during the same period.

However, few startups have been in a tight squeeze in past few weeks. For Example: Edtech firm?Unacademy?has let go of more than 1800 contract-based and permanent employees.?Softbank-backed e-commerce portal Meesho laid off 150 employees last month in April 2022, furniture rental startup Furlenco let go of 180 employees, and online learning platform Trell fired half its workforce.

In April last year, 8 startups became unicorns. However, this April, no startup in India got the unicorn tag, signalling a slump.

However, I believe that this correction might improve the quality of VC funding in the Indian ecosystem. Looking at the trend, early-stage startups will continue to see the funding momentum from last year, despite the prevailing headwinds arising from an uncertain macroeconomic environment in the country. With India’s digital economy continuing to maintain pace, I believe fintech and edtech startups will continue to carry the flavor.?

Additionally, according to a Bain & Company report, in collaboration with Indian Venture and Alternate Capital Association, the number of VC deals are poised to go down this year.?But that being said, the slowdown is restricted mostly to the growth stage and that too will recover as markets settle down.

So, has the start-up bubble really dried up? - I don't think so, as its too early to conclude.