After 2 years of high, e-commerce startups may find fundraising tough in 2022

The past two years were phenomenal for e-commerce and other startups in the country as the Covid pandemic and lockdowns forced people to stay indoors and made them opt for more and more digital services. With it, came a flood of funding for companies. But, all good things have to come to an end and this year, the funding situation is likely to be more tempered. Though investments won’t dry up, they will certainly come off their highs of the last two years.

Venture capitalists and equity funds poured in over $15 billion into e-commerce startups last year, which was a five-fold jump from the previous year. The number of deals too increased from 149 in 2020 to 219 last year, according to Venture Intelligence.

Across the world, big deals are still being made, but valuations are not what they were last year. Some companies are also reevaluating their fundraising efforts, said, industry insiders. Promoters will get the funding they want if their company is “special” with growth prospects higher than industry standards. But for all others, it will probably be down by 20% as compared to November and December of 2021.

There are already reports of large investment firms like Tiger Global and D1 Capital holding back on late-stage investments. Startups that are growing at 3x will not face any problems, but for smaller players, there will be difficulties as the year progresses.

The general markets have come off their highs, which will have an impact on funding. Added to this is the Russia-Ukraine war which has introduced a lot of uncertainty into the markets. Experts feel that the war could lead to real inflation across the world, triggering a recession, which could further dry up funds to early startups.

But, this downturn too could offer opportunities to many e-commerce startups. When the times are good and competition is intense, companies find it difficult to up their market share. But when there is a downward tick, companies that are well positioned emerge stronger. Ecommerce startups need to be flexible and nimble to take advantage, an investment company veteran said.