Venture Capital Funding in Indian Startups Hits 6-Year Low: Report

Indicating a challenging time for the Indian startup ecosystem, Venture Capital (VC) funding plummeted to a six-year low in November 2023. Data released by Venture Intelligence on December 1 revealed that Indian startups secured a mere USD 223 million in funding across 35 deals. This marked a significant decline of approximately 66 percent from the preceding month, where USD 655 million was raised in 52 deals.

Lowest Point Since January 2017

The funding scenario in November hit an all-time low point which was not witnessed since January 2017 when startups managed to secure only USD 207 million in 43 deals. This current downturn shows the prolonged funding winter that has gripped the Indian startup landscape.

Massive Year-on-Year Decline

Additionally, the year-on-year comparison painted a bleak picture, with November 2023 experiencing a staggering 78.2 percent decline in funding from USD 1.02 billion in 62 deals in the corresponding month of 2022.

Overall Impact on 2023 Funding

The repercussions of the November funding crunch were felt on the cumulative funding for 2023. Until November, Indian startups garnered approximately USD 7.05 billion, reflecting a sharp 71 percent decline from the robust USD 24.36 billion recorded in 2022.

Venture Capital Firms Scaling Back

Venture capital firms also exhibited a slowdown in closing rounds, with the number of deals halving to 544 in the first 11 months of 2023 from the 1,226 deals completed in the entirety of 2022.

Shifting Investor Focus

The contraction in funding comes at a juncture where investors have shifted their focus from high-growth ventures to startups demonstrating profitability, prolonging the ongoing funding winter. This shift in dynamics was particularly evident in FY23, as startups redirected their strategies towards achieving profitability.

Startups Adapting to New Realities

During FY23, several startups, including upGrad, Eruditus, Practo, LEAD, and Moglix, made significant efforts to trim losses. However, the positive impact of these measures is yet to be fully realized, especially in the context of late-stage funding rounds.

Late-Stage Funding Drought

Late-stage funding rounds witnessed a conspicuous absence from the ecosystem over the last two months, despite a noticeable resurgence in August and September. In 2023, startups secured funding in only 45 deals, amounting to USD 1.9 billion, a considerable drop from the 77 deals totaling USD 6.8 billion in the previous year.

Anticipating a Turnaround

While early-stage funding rounds have also been scarce, recording only USD 1.14 billion in funding across 316 deals, November showcased some promise. The top deals in November ranged from seed to series B, indicating potential greenshoots for early-stage funding. Investors remain optimistic, expecting a better deal flow in 2024 and a potential resurgence of late-stage deals in the latter half of the year.

Geo-Political Issues and M&A Activity

Despite the drop in funding, data from Venture Intelligence reveals a significant decrease in deals with announced values in 2023 compared to the previous year. The most notable decline is observed in inbound deals, with geo-political issues contributing to a dampening of cross-border investments. However, there is optimism surrounding Mergers and Acquisitions (M&As), with activity poised for an upward trend by the close of the financial year.

The Indian startup landscape finds itself navigating a challenging funding terrain, with startups and investors alike bracing for potential shifts in the coming months. The resilience of the ecosystem will be tested as stakeholders adapt to evolving market dynamics and strive for a robust recovery in the funding landscape.

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