The agrifoodtech startup ecosystem in India mirrored the global slump in venture capital funding in 2022, with funding dropped 33 percent to $2.4 billion in 2022, from $3.6 billion in 2021, a report showed last week.

Euphoric startup valuations, alongside easy money, drove investments to a record-breaking high in 2021, followed by a swift correction, AgFunder said in a report.

According to the report, the number of deals in the sector also declined to 133 in 2022, compared to 230 deals in 2021.

Upstream agrifoodtech startups were the bright spot in a bleak year, raising $617 million, up 50 percent year-on-year from $409 million a year ago.

Farmtech remained relatively strong, raising $1.1 billion in 2022, only a modest 15 percent drop from $1.3 billion in 2021.

Rising concerns around the impact of climate change on Indian agriculture have captured the attention of investors, catalyzing efforts to deliver efficient and affordable technology solutions to smallholder farmers.

Agribusiness marketplaces and Fintech category was the most funded upstream category.

Startups working to integrate India’s hyper-fragmented agricultural ecosystem attracted generalist investor attention including DeHaat, Waycool, and Captain Fresh.

Upstream investments have also become more diverse, with increasing activity in carbon credits and farm robotics.

Despite attracting heavy funding over the past few years, investment dollars in downstream agrifoodtech startups saw a 37 percent dip to $1.7 billion in 2022 from $2.6 billion in 2021.

Swiggy’s $700 million late-stage deal accounts for the bulk of investment in this category.

Meal Marketplaces and eGrocery were the most funded downstream categories yet again.

The capital raised by these two categories accounts for 54% of total funding in Indian agrifoodtech, with eGrocery startups landing the highest number of late-stage deals.

EGrocery startups raised $776 million across 20 deals, accounting for 32 percent of overall agrifoodtech funding in India

According to the report, once the pandemic lockdown ended, many downstream ventures struggled to maintain the accelerated pace of growth created by Covid-19 in 2020 and 2021.

A highly saturated home delivery market further reduced investor interest.

In the coming months, AgFunder expects fewer players to enter the downstream market and to see more merger and acquisition (M&A) activity among existing companies.

Across India’s agrifoodtech ecosystem, it said that 2023 will stress test startups, while also being an ideal vintage for venture capitals who can enter promising deals at cheap valuations.

Despite the transient headwinds, it said agrifoodtech in India will continue to surge ahead.

The report also showed midstream technologies deal activity decreased.

While the category remains active with $232 million raised across 14 deals, the reduction in deals indicates multiple sub-categories achieving relative maturity

Meanwhile, despite the dip, AgFunder said the agrifoodtech sector is a critical emerging space in India for transforming agriculture and ensuring food security.

With the responsibility of sustaining 17.7 percent of the world’s population, it said the country is facing the urgent task of addressing various value chain inefficiencies and mitigating the escalating effects of climate change.

The report also noted that more than 80 percent of Indians live in climate-vulnerable districts, and by 2030, over 17 million people in India can potentially go hungry due to climate change-induced hunger.

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