Funding Alert

Karnataka’s Startup Funding Plummets 80% Due to Global Tensions

• ByStartupStory     |    December 15, 2023

According to the Karnataka Mid-Year Review of State Finances (2023-24) presented in the state legislature, startup funding in Karnataka has plummeted by 80%. The report highlights a substantial decline from $3.4 billion in the previous year’s first half to $0.6 billion in the current financial year, marking a $2.8 billion decrease.

Citing heightened investor caution and valuation concerns, the report notes a 70% reduction in startup funding across India. It stated, “The Indian startup ecosystem is grappling with heightened investor caution and valuation concerns, leading to a 70 percent decrease in startup funding activity across India, from $6.6 billion in Q1 FY23 to $1.9 billion in Q1 FY24.”

Bengaluru, known as India’s startup capital and home to 40% of the country’s unicorns, faces notable challenges due to these funding declines, amplifying concerns within the Private Equity/Venture Capital sector. The global VC funding landscape’s uncertainty, influenced by macroeconomic and geopolitical conditions, is impacting the sector significantly.

The report attributes a 23.9% drop in Foreign Direct Investment (FDI) in India to declines in services and computer software, experiencing a substantial 60% decline amounting to $4 billion. It highlights, “Karnataka, as the IT hub of India with a majority of global IT companies headquartered in Bangalore, magnifies the impact for the state.”

The slowdown in advanced economies contributed to a 46% decrease in FDI for Karnataka, falling from $5.3 billion in the first half of FY23 to approximately $2.8 billion in the first half of FY24. This decline is primarily linked to reduced funding for startups and diminished FDI inflow in the IT/Software sector.

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