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Tech Start-ups in 2022: Cautious Investors Changed Strategy
Tech Start-ups in 2022: Cautious Investors Changed Strategy

February 21, 2023

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Tech Start-ups in 2022: Cautious Investors Changed Strategy

 

Investors in tech start-ups adopted the mantra "Down but not out" during this uncharacteristically difficult year for these businesses. The investors' investing strategy was impeded by global headwinds and IPO anxieties, but their investments show a strategic shift.

Despite the decline, annual investments were a little higher than the four-year average. After two exceptional years, 2022 appears to have become the new standard based on the sizeable portion of investments made in non-Unicorns and the rise in the number of unique start-ups sponsored.

  • ~1400 unique start-ups funded which 18% higher than 2021
  • >40% Drop in mega-rounds (deals with round size greater than USD 100 Mn)
  • All late-stage agreements saw a 29% decline in median deal value, whereas mega rounds saw a 14% gain.

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The private markets were impacted by the adjustment in public market valuations for technology businesses. The pace of acquisitions has slowed as investors have observed a decline in unrealized Internal Rate of Return (IRR) and start-ups have found it more difficult to support the valuations they were seeking in follow-on rounds with their business data.

But 2022 belong to seed and early stage start-ups that observe >30% increase in funding from the previous year. Investors found more long term value and impact in these start-ups and moving away from their regular trend of investing large in late stage tech start-ups

  • 66% of total investments went to non-unicorns unlike previous years
  • The average ticket size is similar to 2021, with >20% increase in the median ticket size in the seed and early stages compared to 2021.

 

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On the one hand, late-stage funding is 40% lower, while seed and early-stage funding has increased by more than 30%. This clearly shows that investors are still confident in the Indian tech start-up ecosystem story, and they continue to bet on the same. It's just that the shift in focus is happening there too because of global market dynamics and looking for better returns.


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