Funding in India's tech startup ecosystem in 2023 has been the lowest in the last five years. It received $7 billion in 2023, bringing India's global ranking one point down— from fourth to fifth. FinTech, retail, and enterprise applications were the top-performing sectors in 2023 till date. Funding declined across all stages, with late-stage funding dropping over 73 per cent, followed by early-stage funding (70 per cent) and seed-stage funding (60 per cent).
LetsVenture, Accel and Blume Ventures topped the list of most active investors in 2023 to date and Bengaluru, Mumbai, and Delhi-NCR were the top-funded cities in India in the year. These findings are part of the 'Annual India Startup Report: 2023' which was released by Tracxn, a global market intelligence platform.
The report further pointed out that the Indian tech startup ecosystem witnessed a significant funding decline of 72 per cent (from $7 billion to $25 billion in the previous year), making it the lowest-funded year in the last five years. The shortfall in funding led to India being dropped from fourth place in 2022 and 2021 to fifth 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 report observes that the decline is primarily due to the biggest drop in late-stage funding, by over 73 per cent 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 per cent compared to the last year. FinTech, driven by increasing smartphone penetration and government initiatives towards a cashless economy, received $2.1 billion in funding so far in 2023, a decrease from $5.8 billion from the same period last year. PhonePe, the payments company, stood 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 per cent of the funding received by the sector. Perfios, Insurancedekho, and Kreditbee, were some of the other top-funded companies in the sector in 2023.
The report further pointed out that the retail sector received $1.9 billion in funding, marking a 67 per cent drop compared to 2022. Lenskart, with $600 million raised in two Series J rounds, emerged as the top-funded company in the sector this year.
Enterprise Applications was the third-highest funded sector in 2023, and experienced a significant decrease of 78 per cent compared to the previous year.
However, despite the overall funding slowdown, sectors such as Environment Tech and SpaceTech garnered investor attention. Environment Tech received $1.2 billion in funding, while SpaceTech saw a 6 per cent increase with $122 million raised so far in 2023.
Other aspects highlighted in the report include the fact that only two companies— Incred and Zepto—turned unicorns this year, compared to 23 in the previous year. Acquisitions too came down, from 187 in 2022 to 119 this year so far—a 36 per cent 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 were some of the notable tech IPOs of 2023.
The report also observed that 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.
"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,” remarked Neha Singh, Co-Founder, Tracxn
Interestingly, this decline in funding comes at a time when India's economy is expected to grow at a 6.3 per cent annually 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 Programme, 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.