The Indian startup landscape has hit a rough patch in the first half of 2023, witnessing a considerable drop in funding. The flow of capital from significant late-stage investors has dwindled, coinciding with a slump in the broader public market. A year ago, these ‘kingmaker’ investors were generous in their funding efforts, but today, they exercise cautious restraint, contributing to a challenging phase for Indian startups.
According to Tracxn, a market intelligence agency, Indian startups managed to garner only $5.46 billion in H1 2023. This figure represents a striking 68% decrease from the $17.1 billion raised in the same period in 2022 and a further dip from $13.4 billion in H1 2021.
In a marked contrast to previous years, 2023 has yet to see the birth of any fresh Indian unicorns. The startup ecosystem was buzzing with 18 new billion-dollar entrants in H1 2022 and 16 in H1 2021, making the current situation appear stark.
This funding crunch isn’t just impacting late-stage startups; early-stage startups are also feeling the heat. Tracxn’s data reveals that the total number of seed funding deals in H1 2023 plummeted to 325, a stark decrease from 936 and 921 deals in the corresponding periods of 2022 and 2021, respectively. Early-stage funding rounds, primarily Series A and Series B, followed suit, with a reduction to 108 from 296 and 211 in H1 2022 and H1 2021, respectively.
Large-scale investors like Tiger Global and SoftBank, who were once prolific contributors to the Indian startup scene, have drastically reduced their involvement. Notably, Tiger Global conducted only one deal in 2023, while SoftBank, despite investing over $3 billion in 2021, has refrained from any new investments. Instead, SoftBank has focused on increasing liquidity, with rumors of it offloading parts of its Paytm stake.
Tiger Global, despite having invested over $6.5 billion in Indian startups overall, seems unlikely to invest in new startups in the coming months. The fund’s representative reportedly expressed dissatisfaction with previous returns on capital in India.
This reticence from major players has created a vacuum filled in part by sovereign funds, particularly from the Middle East region, who have bankrolled most of the Indian deals recently. However, mid-stage investors are grappling with these shifts and the absence of IPOs, causing severe devaluation of startups like Byju’s, Swiggy, and PharmEasy.
Despite this gloomy atmosphere, a silver lining emerges in the form of ‘dry powder,’ unused funds held by venture capitalists. Prominent VC firms like Peak XV Partners, Lightspeed, Accel, Elevation Capital, Matrix India Partners, 3One4 Capital, and Blume Ventures, have secured larger funds over the past 18 months.
