According to a recent report, Indian tech startups have been facing a decline in funding for a long time. Funding is set to decline by 72% in 2023, reaching a five-year low. According to a report by data intelligence platform Traxon, startups secured only $7 billion, which is significantly less than last year’s $25 billion.
The report found funding declines across all startup stages: late-stage funding declined by more than 73%, early-stage funding declined by 70%, and seed-stage funding declined by 60%. As a result, India slipped to 5th place in the global ranking of most funded sectors in 2023.
The report notes that the last quarter (Q4) had the lowest funding ever (totaling $957 million). This is the lowest funding quarter since Q3 2016.
Biggest decline in late-stage funding
The report notes that the decline in funding is primarily due to a significant decline in late-stage funding, which has fallen by more than 73% from $15.6 billion in 2022 to $4.2 billion in 2023. The number of $100 million-plus rounds recorded was only 17, down 69 percent from last year, the report said.
Driven by increasing smartphone penetration and government initiatives towards a cashless economy, fintech has received funding of $2.1 billion so far in 2023, which is $5.8 billion less than the same period last year.
Leading payments company PhonePe has maintained its position as the firm that has raised the most funding in the sector by securing a total of $750 million, the report said. This amount is 38% of the total funding received by the sector. Some other companies like Perfios, InsuranceDekho and Creditbee also received decent funding after PhonePe.
Retail sector also got a shock
Traxon’s report revealed that the retail sector received a total of $1.9 billion in funding, which saw a significant decline of 67% from 2022. Gurugram-based eyewear retail chain Lenskart secured the highest funding of $600 million. In 2023, enterprise applications ranked third in funding, but received 78% less funding than in 2022.
The report highlights a significant shift in investor attention towards the environmental technology and space technology sectors. These sectors have received support from the central government to align with the Sustainable Development Goals and economic development efforts.
The report said environment tech secured $1.2 billion in funding, while spacetech received a 6% increase and raised $122 million in 2023. The increase in spacetech funding was attributed to government privatization efforts in the sector.
Only 2 unicorns in 2023
The sector suffered a significant setback with only two unicorns (startups valued at more than $1 billion) this year – Incred and Zepto – compared to 23 last year. This trend indicates ongoing challenges for companies to achieve adequate valuations and growth. However, experts like Tracxn co-founder Neha Singh remain optimistic.
He expressed confidence in India’s success as it is well positioned with favorable government policies and a rapidly growing economy. She said, despite the current challenges, she is focused on innovation and value creation, and is confident that the industry will rebound and flourish in the years to come.
The report highlights the strong momentum in IPOs, with 18 tech companies going public so far in 2023, compared to 19 in 2022. Notable tech IPOs this year include Ideaforge, Yatra and IKIO Lighting.
Bengaluru, Mumbai and Delhi-NCR maintained their positions as favorable destinations and attracted substantial funds. LetsVentures, Accel and Bloom Ventures have been recognized in the report as the top investors contributing to the growth of the technology sector in India.
