Indian startups' funding winter persists, 72% decline in 2023: Report

The report highlighted that the funding declined across all stages, with late-stage funding dropping over 73%. Strong IPO momentum, and investors' interest in space tech were a silver lining

The Indian tech startup ecosystem continues to face the prolonged funding winter period, as revealed in a recent report, which showed that the funding received by the sector in 2023 was the lowest in the past five years. With a decline of 72 per cent, Indian startups churned merely $7 billion this year so far, a steep drop compared to $25 billion in the previous year, the report 'Annual Report: India Tech 2023', launched by the data intelligence platform Tracxn, showed.

The report highlighted that the funding had declined across all stages, with late-stage funding dropping over 73 per cent, followed by early-stage funding (70 per cent) and seed-stage funding (60 per cent). With this, India's global ranking also dropped a place to 5th position in the list of the highest-funded geographies globally in 2023.

"The last quarter (Q4) recorded the lowest funding of $957 million to date, marking it the lowest-funded quarter since Q3 2016," the report said.

Biggest drop in late-stage funding

The report attributed the funding decline primarily to the biggest drop in late-stage funding -- by over 73 per cent to $4.2 billion in 2023 from $15.6 billion in 2022. "The number of $100 million+ rounds recorded were only 17, dropping by 69 per cent compared to last year. FinTech, driven by increasing smartphone penetration and government initiatives towards a cashless economy, has received $2.1 billion in funding so far in 2023, a decrease from $5.8 billion from the same period last year," the report revealed.

It said that leading payments company PhonePe remained the top-funded firm in this sector, securing a total of $750 million, which makes up for 38 per cent of the total funding the sector received. Perfios, Insurancedekho, and Kreditbee were among the others who followed the lead.

Retail sector faces the blow too

According to Tracxn's report, the retail sector received a total of $1.9 billion in funding, a staggering 67 per cent drop compared to 2022. Gurugram-based eyewear retail chain Lenskart emerged as the winner in this sector, securing the highest funding at $600 million.

Enterprise Applications was the third-highest funded sector in 2023 but saw a 78 per cent decrease in its funding compared to 2022. It secured a total of $1.56 billion in funds, the report noted.

Silver lining

Notably, the report observed the investors' attention shift towards environment technology and space technology sectors, which have also seen a push by the central government to align with its sustainable development goals and economic growth efforts.

"Environment tech received $1.2 billion in funding, while SpaceTech saw a 6 per cent increase with $122 million raised so far in 2023 brought about by its privatisation by the government," the report said.

Only 2 unicorns in 2023

One of the major setbacks for the sector has also been the presence of only two unicorns (startups valued over $1 billion) this year - Incred and Zepto, as opposed to 23 in the previous year. The trend indicated the persisting challenges faced by companies to achieve substantial valuation and growth trajectories but experts are optimistic. "With favourable government policies and a fast-growing economy, we believe India is well-positioned for success in the years to come. Our focus remains on innovation and creating value, and we are confident that the industry will rebound and flourish," Neha Singh, the co-founder of Tracxn, weighed on the gloomy scenario of the sector.

Another key highlight of the report remained the robust initial public offering (IPO) momentum. IPO numbers did not see a significant drop, with 18 tech companies going public (offering stakes) in 2023 till date as compared to 19 in 2022. Ideaforge, Yatra and IKIO Lighting are some of the notable tech IPOs this year.

Bengaluru, Mumbai, and Delhi-NCR continued to cement their position as favourable destinations, attracting significant funding. The report also credited LetsVenture, Accel, and Blume Ventures among the top investors supporting the growth of the technology space in India.