India tech startup funding in 2023: Takeaways from a five-year low

India’s tech startup ecosystem continues to face the effects of the funding slowdown throughout 2023, with $7 billion in total funding, as of December 6. Image: Shutterstock
 
“While the funding slowdown in 2023 presents challenges for the Indian tech startup ecosystem, we remain optimistic about the future,” Neha Singh, co-founder of Tracxn, says in the private markets intelligence provider’s latest report on the funding scene in India’s startup ecosystem. In a year when large global names that drove the funding frenzy of previous years were absent, favourable government policies and a fast-growing local economy will help India’s startups succeed, Singh says.

Here are the top takeaways from Tracxn’s recent report on funding in India’s tech startup landscape in 2023:

Lowest funding in five years

India’s tech startup ecosystem continues to face the effects of the funding slowdown throughout 2023, with $7 billion in total funding, as of December 6. This is a 72 percent drop over $25 billion in 2022, and the fall made 2023 the lowest-funded year in the last five years.

The October-to-December three-month period has received a total funding of $957 million, making it the lowest funded quarter since September 2016. The decline is primarily due to the biggest drop in late-stage funding, by over 73 percent to $4.2 billion in 2023 from $15.6 billion in 2022. At 17, the number of $100 million-plus rounds this year, is 69 percent lower than in 2022.

India fell one position to end 2023 as the fifth-most funded geography globally, from rank four in 2022 and 2021.

Cuts across stages

2023 saw cutbacks across all stages of funding, with late-stage investments taking the biggest hit. Such financing dropped by more than 73 percent to $4.2 billion in 2023 at the time of the report’s compilation, from $15.6 billion in the same period in 2022. Early-stage funding wasn’t far behind, falling 70 percent this year to $2.2 billion from $7.3 billion in the same period in 2022. Seed-stage funding fell 60 percent to $678 million from $1.7 billion in 2022.

The Indian tech ecosystem saw only 17 investments that were more than $100 million in value in 2023 versus 55 last year, a 69 percent drop. Lenskart, PhonePe, Perfios and Zepto are some of the top funded companies in India in 2023.

LetsVenture, Accel and Blume Ventures were the top investors in Indian tech and tech-enabled startups. 100X.VC, Venture Catalysts and Y Combinator were the lead investors at the seed stage. Accel, Peak XV Partners and Elevation were the most active investors in the early stage. Singularity Ventures, Avataar Ventures and Filter Capital were the leading investors actively involved in late stage, according to Tracxn.

Bengaluru, Mumbai and Delhi-NCR were where the top-funded startups were based.

Also read: Three VCs on how they are changing India's deeptech landscape

Cuts across sectors

Fintech, retail and enterprise applications were the top performing sectors in 2023. Despite being the top-performing sectors they saw significant drops in funding. Fintech has always been one of the top-funded sectors in the country. Increasing smartphone penetration, the government’s push towards a cashless economy and other favourable regulatory policies have helped the sector receive consistent investor interest, Tracxn’s report notes.

In 2023 the sector received $2.1 billion in funding versus $5.8 billion in the same period last year. PhonePe was the top-funded company in the sector in 2023, receiving a total of $750 million in four Series D rounds. This alone accounted for 38 percent of the total funding received by the sector. Perfios, InsuranceDekho and KreditBee were some of the other top funded companies in the sector this year.

Retail sector startups received a total of $1.9 billion, a 67 percent drop versus 2022. Lenskart was the top-funded company in the sector in 2023, receiving $600 million in two Series J rounds. Zetwerk, Atomberg and XpressBees were some of the other top-funded companies in the sector this year.

Enterprise applications was the third-highest funded sector in 2023, receiving $1.56 billion in funding in 2023, down by 78 percent from $7 billion in 2022. Environment tech and space tech were among the sectors that attracted investor interest in 2023, with funding of $1.2 billion and $122 million respectively in 2023. That was a 50 percent drop for environment tech versus 2022, but a 225 percent increase versus 2021, according to Tracxn.

The liberalised privatisation policies announced by the government have made space tech more attractive to VCs as well as strategic investors. The funding in 2023 for the sector rose a modest 6 percent versus $115 million in 2022. Google’s investment in satellite-based imaging company Pixxel was a highlight in 2023 in Indian space tech.

Two unicorns

Two new unicorns—startups privately valued at $1 billion or more—were created in India in 2023 versus 23 in 2022, a 91 percent drop. InCred and Zepto, both based in Mumbai, were the two companies that entered the unicorn club in 2023 in India.

IPO numbers didn’t really see a drop this year, with 18 tech companies going public versus 19 in 2022. IdeaForge, Yatra and IKIO Lighting were some of the notable tech IPOs in 2023.

There were 119 acquisitions in 2023 versus 187 in 2022, a 36 percent drop. Route Mobile, Arcion and Gram Power were among notable acquisitions in 2023.

India opportunity

India is one of the fastest-growing major economies in the world, is expected to grow at a 6.3 percent annual rate in 2023–24, and is expected to keep growing at the same pace or slightly higher in the upcoming fiscal year, Tracxn notes.
At a global level, economies were able to perform better than anticipated at the start of 2023, global inflation is easing slowly and the effects of the Russia-Ukraine war are also expected to slowly fade in 2024, which will help inflation cool off even further, according to Tracxn.

The government of India’s programmes to support tech startups in the country since the Startup India initiative was announced in 2016 has helped the ecosystem. Today there are steps being taken to help startups and industries in multiple areas, from drones to semiconductors to space exploration.

The IMF projects India to become the third-largest economy in the world by 2027, with a GDP of over $5 trillion. With a large consumer base comprising the world’s largest young population and rising urban incomes, India is set to see good growth in the coming years.