Venture capital funding for start-ups is fast drying up with the sharp rise in interest rate across the globe and the era of free money coming to a close.

Global venture capital investment plunged to a six-year low of $57 billion across 6,030 deals in the March quarter against $86 billion across 9,619 deals in the December quarter as major uncertainties in the market showed no sign of waning, according to KPMG’s Venture Pulse.

The global VC investment in March quarter was the lowest level of quarterly investment since June quarter of 2017, and a sharp decline both quarter-over quarter and year-over year.

VC funding in Indian start-ups declined to three-year low of $2 billion against $9 billion logged in March quarter of 2022, a fall of 77 per cent.

Quarter-on-quarter it was down 25 per cent from $2.8 billion logged in December period last year. VCs had deployed $2.1 billion in the April-June period of 2020.

VC investment in India remained relatively soft in March quarter as investors intensified their scrutiny of potential deals. While FOMO (fear of missing out) drove a lot of VC investment in India in last two years, investors have since enhanced their focus on start-up performance and profitability, said the report.

Attractive sectors

Interest in alternative energy remained robust in India in March quarter, with VC investors particularly focused on the two-wheeler EV market. Fintech continued to drive many of the largest deals in India.

Nitish Poddar, Partner and National Leader, Private Equity, KPMG in India, said the biggest change in India is that the euphoria for deals has died down and the big-ticket deals have also dried up, which has had an outsized impact on total investment numbers.

Despite the visible decline, a lot of funding is happening in pre-series A deals and new micro funds of $100 million with check sizes from $1-5 million are being raised, he added.

Increasing interest rates, stubbornly high inflation, domestic and geopolitical challenges and concerns on the stability of the global banking system all combined to make it a difficult quarter for VC investment across all regions.

The decline in VC investment was particularly stark year-on-year, with March quarter investment adding up to less than a third of the total investment of $178 billion in March quarter 2022.

Global exit value dropped over 50 per cent quarter-on-quarter $20.3 billion against $46.4 billion in exit value in December quarter 2022.

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