India’s Startup Funding Sees Sharp Decline in 2023, Drops to 5th Place Globally

• ByStartupStory     |    December 9, 2023

India’s startup landscape faced significant headwinds in 2023, experiencing a notable funding slowdown that resulted in a drop from the 4th to the 5th position among the world’s highest-funded geographies, according to a report by startup data firm Tracxn. The year witnessed a staggering 72% plunge in startup funding, totaling just $7 billion compared to the previous year’s $25 billion, marking the lowest-funded year in the last five years.

Q4 2023, in particular, recorded the lowest funding to date, amounting to $957 million, making it the least funded quarter since Q3 2016. The decline in funding was widespread across different investment rounds, with late-stage funding taking the most significant hit, plummeting over 73% to $4.2 billion in 2023 from $15.6 billion in 2022. Early-stage and seed-stage funding also saw substantial declines of 70% and 60%, respectively.

Furthermore, India’s tech ecosystem witnessed a substantial drop in large funding rounds, with only 17 rounds exceeding $100 million in 2023, compared to 55 in the same period last year—a 69% decrease. In 2023 so far, only two unicorns emerged, including fintech firm Incred and hyper-local delivery service Zepto, in stark contrast to the 23 unicorns created in 2022.

Despite the funding challenges, the IPO market remained resilient, with 18 startups going public in the current year, just one short of the 19 recorded last year.

Highlighting some success stories amidst the funding winter, top-funded companies in 2023 included Lenskart, PhonePe, Perfios, and Zepto. Fintech and retail companies emerged as successful outliers, with fintech being the highest-funded sector, albeit with a notable drop from $5.8 billion to $2.8 billion. PhonePe contributed significantly, securing $750 million across four series D rounds.

Retail tech saw a 67% drop in funding compared to the previous year, with Lenskart securing the top spot by raising $600 million in two Series J rounds.

While traditional sectors faced challenges, new areas showed promise to investors. Space tech, buoyed by government privatization, experienced a 6% increase, raising $122 million in 2023. Additionally, environment tech received $1.2 billion in funding.

Neha Singh, Co-founder of Tracxn, expressed optimism about the future despite the funding slowdown, citing favorable government policies and a fast-growing economy as key factors positioning India for success in the coming years.

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