From Boom to Bust: Indian Startup Funding Falls 77% in Just One Year

The Indian startup ecosystem celebrated its first Unicorn of the year in the end of the seventh month when Web3 Startup Zyber achieved this prestigious status. Last year this number was 23. This shows that the year has not been entirely positive for the startup landscape, with some prominent startups experiencing valuation markdowns, indicating underlying issues in the country's startup ecosystem.

According to a report by Venture Intelligence, funding to Indian startups witnessed a sharp decline of approximately 77 percent in the first seven months of 2023 compared to the same period last year. The number of funding deals was mere 344 which in the same period in 2022 was 822.

This significant drop exacerbates the existing fund crunch in the startup industry, particularly as investors exercise caution regarding the potential overvaluation of certain major startups.

Funding to Indian Startups Plunges 77% in 2023

Indian startups are facing a severe funding crunch in 2023, with a staggering 77 percent decline in private equity and venture capital (PE/VC) funding during the first seven months compared to the same period in the previous year.

Data shared by Venture Intelligence revealed that startups in India managed to secure only USD 4.4 billion in funding from January to July, down from a robust USD 19.3 billion in the corresponding period in 2022. This sharp decline in funding comes at a time when industry observers have been warning about the potential overestimation of India's internet market.

Dismal Funding Figures for Indian Startups

The funding landscape for Indian startups took a significant hit, with only 344 funding deals recorded in the first seven months of 2023, compared to 821 deals during the same period in the previous year. In the month of July alone, investors participated in approximately 42 funding rounds, investing a total of USD 523 million. This figure pales in comparison to the USD 2.6 billion invested across 77 funding rounds in July 2022.

Monthly Comparison Reflects Deepening Crisis

July 2023 saw a dramatic decrease in funding amounting to almost 80 percent year-on-year, and the number of deals also fell by approximately 45 percent compared to July of the previous year. The decline continued from the previous month, with funding falling slightly from USD 546 million in about 44 deals in June. It is important to note that the data provided only covers funding deals announced until July 25.

Warning Signs from Industry Watchers

The funding downturn comes amidst a growing concern expressed by various industry watchers, including prominent founders and venture capitalists, who caution against the overestimation of India's internet market. 

Amidst the funding challenges, notable industry experts, including founders like Cuemath's Manan Khurma, Phonepe's Sameer Nigam, and Zerodha's Nithin Kamath, along with venture capitalists, have expressed concerns about the possibility of overestimating India's internet market. Observations suggest that the market's growth, which had surged during the pandemic, may now be slowing down.

Stage-wise Funding Decline

If we look at the stage-wide funding trend, the early-stage funding has been significantly affected, with a recorded decline of about 55 percent in deals from the seven-month average of 2022, which stood at 442 deals. In terms of funding, startups received only USD 722 million during January to July 2023, marking a stark 59 percent decrease from the USD 1.8 billion received during the same period in 2022.

Growth and late-stage investments have also experienced downward pressure, with startups securing USD 3.7 billion in funding across 146 deals till July 2023. This compares unfavorably to the seven-month average of USD 12.4 billion raised across 272 late and growth-stage deals in 2022.

Top Investors and Deals

Peak XV Partners (previously Sequoia India) emerged as the leading investor, engaging in about 21 deals during the first seven months of 2023. Blume Ventures followed closely with 16 deals, pushing Accel India to third place with 12 investments this year. Rainmatter Capital and Lightspeed Ventures also earned spots among the most active investors with 10 investments each.

Among the notable funding deals in 2023, eyewear brand Lenskart secured the top position by raising USD 500 million in March. Builder.ai followed with a USD 250 million fundraising round in May. Infra.Market, Zetwerk, and InsuranceDekho each raised USD 150 million.

In a significant funding development this month, Veritas Finance, an NBFC (non-banking financial company), raised USD 146 million from Multiples PE, Avendus PE, and IFC. Other important deals included Genleap's USD 50 million and RenewBuy's USD 40 million funding rounds.

The substantial decline in funding for Indian startups during the first seven months of 2023 is causing concern among industry stakeholders. With funding plummeting by 77 percent and the number of deals nearly halving, the Indian startup ecosystem is facing significant challenges.

The cautionary warnings from industry leaders about the potential overestimation of the internet market add further complexity to the situation. As the year progresses, stakeholders in the startup space will closely monitor the funding landscape and hope for a rebound in the near future.