Funding winter proves 2023 India’s lowest-funded year in last 5 years

Image by Navanwita Bora Sachdev

According to the Tracxn Geo Annual Report: India Tech 2023, the Indian tech startup ecosystem has witnessed a significant funding decline of 72% in 2023, compared to $25 billion in the previous year, making it the lowest-funded year in the last five years. With a total funding of $7 billion received so far this year, India has dropped from 4th place in 2022 and 2021 to 5^th place among 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 decline is primarily due to the biggest drop in late-stage funding, by over 73% 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% 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.

While the funding slowdown in 2023 presents challenges for the Indian tech startup ecosystem, we remain optimistic about the future
Neha Singh, Co-Founder, Tracxn

Neha Singh, Co-Founder, Tracxn said, “While the funding slowdown in 2023 presents challenges for the Indian tech startup ecosystem, we remain optimistic about the future. 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.”

Sanjay Sehgal, Chairman and CEO at MSys Technologies, Venture and Angel Investor, says that following the shutdown of homegrown fintech startup Zest Money earlier this month is just an early indicator of what seems to be yet another year of funding winter.

Even the high performing sectors like fintech and e-commerce have seen a slump. But continuous innovation is at the center of the market where environment tech and space tech startups have seen an uptick in funding
Sanjay Sehgal, Chairman and CEO at MSys Technologies, Venture and Angel Investor

“Even the high performing sectors like fintech and e-commerce have seen a slump. But continuous innovation is at the center of the market where environment tech and space tech startups have seen an uptick in funding.”

The Funded

PhonePe, a leading payments company, stands out as the top-funded company in the sector, securing a total of $750 million in four Series D rounds which makes up for 38% of the funding received by the sector. Perfios, Insurancedekho, and Kreditbee, are some of the other top-funded companies in the sector this year.

The Retail sector has received $1.9 billion in funding, marking a 67% drop compared to 2022. Lenskart, with $600 million raised in two Series J rounds, emerges as the top-funded company in the sector this year.

Enterprise Applications, the third-highest funded sector in 2023, has experienced a significant decrease of 78% compared to the previous year, securing $1.56 billion in funding.

Despite the overall funding slowdown, sectors such as Environment Tech and SpaceTech have garnered investor attention. For example, recently, the Indian National Space Promotion and Authorization Centre (IN-SPACe), the nodal agency in Department of Space (DoS) responsible to promote, enable, authorize and supervise space activities of the Non-Government Entities (NGEs), announced the Seed Fund Scheme for startups operating in the areas of Urban Development and Disaster Management by using space technology.

Environment Tech received $1.2 billion in funding, while SpaceTech saw a 6% increase with $122 million raised so far in 2023 brought about its privatization by the government.

Other aspects highlighted in the report include only two new unicorns created, Incred and Zepto as against 23 in the previous year and 119 acquisitions as compared to 187 acquisitions in 2022, a 36% drop. Route Mobile, Arcion and Gram Power were some of the major acquisitions in 2023. However, IPO numbers did not see a major drop this year with 18 tech companies going public in 2023 till date as compared to 19 in 2022. Ideaforge, Yatra and IKIO Lighting are some of the notable tech IPOs of 2023.

Bengaluru, Mumbai, and Delhi-NCR continue to attract significant funding in India’s tech startup ecosystem with LetsVenture, Accel, and Blume Ventures, being the top investors supporting the growth of the India Tech space.

This decline in funding comes at a time when India’s economy is expected to grow at a 6.3% annual rate in 2023–24, with further growth anticipated in the upcoming fiscal year. Despite the funding slowdown, the government remains committed to promoting the tech ecosystem in the country. Multiple schemes and initiatives have been introduced, including tax concessions for startups, custom duty exemptions for EV-related capital goods and machinery, and the Drone Shakti Program, among others. These initiatives aim to support the growth of India’s startup ecosystem, fueled by its status as one of the fastest-growing major economies in the world.

Navanwita Bora Sachdev

Navanwita is the editor of The Tech Panda who also frequently publishes stories in news outlets such as The Indian Express, Entrepreneur India, and The Business Standard