Startup Fundraising Trends: February 2023 Insights

Startup fundraising in February witnessed a notable decline, hitting an eight-month low of $596 million, according to a report by Morgan Stanley. This downturn marks a significant drop both on a month-on-month and year-on-year basis.

Decline in Funding

The decrease in private equity (PE) and venture capital (VC) funding has been substantial, with funds plummeting over 83% from $3.6 billion in February 2022 to $596 million in February 2023. Moreover, the total number of deals also saw a decline, dropping from 103 to 35 during the same period.

This decline in investments by PE-VC firms is not a recent phenomenon. Funding began to decline sharply in July last year, with total investments between July and December 2022 totaling $5.4 billion, compared to $17.9 billion between January and June 2022.

Sector Performance

Fintech and food startups emerged as the preferred sectors for PE-VC investments, capturing nearly 60% of the total investments in February.

Six fintech startups, including Insurancedekho, PhonePe, Mintoak, Stable Money, LoanTap, and LoanKuber, collectively raised $280 million during the month. Notably, there has been a shift in investment trends within the fintech sector, with a significant portion of investments (63%) going to payment gateway solutions, compared to lending businesses, which dominated investments in the previous year.

In the food category, FreshToHome led the way by raising $104 million in its Series D fundraising round, with Amazon Smbhav Venture Fund as the lead investor. This capital infusion will support FreshToHome’s expansion plans, including the opening of 100 retail stores.

The remaining $212 million funds were distributed across various sectors such as ecommerce, edtech, and enterprise tech.

The report underscores the challenging fundraising landscape for startups, highlighting the need for resilience and strategic adaptation amid evolving market dynamics.