India's start-up funding slumps: H1 2023 shows 66% decrease in funding rounds

Amid growing challenges, Indian start-ups raised $5.5 billion while no new unicorns were created and layoffs increased

Representative image
Representative image

NH Digital

The global slowdown leading to a cruel funding winter for the start-up ecosystem has left investors less than amused and contemplating the wisdom of their past decisions. The lavish displays of wealth juxtaposed with the financial struggles of these start-ups serve as a stark reminder of the harsh realities that can emerge from a world gripped by economic uncertainties.

India's start-up ecosystem experienced a significant decline in funding during the first half of 2023, reflecting a global trend, according to a report released on Wednesday. While still ranking among the top three funded geographies globally, India witnessed a substantial drop in funding compared to the previous year.

The report, compiled by Tracxn, a SaaS-based market intelligence platform, revealed that total funding in H1 2023 amounted to $5.5 billion, marking a decline of 24 per cent compared to H2 2022 ($7.3 billion) and an alarming drop of 72 per cent compared to H1 2022 ($19.7 billion).

The number of funding rounds also saw a significant decrease, with 536 rounds in H1 2023, reflecting a drop of 43 per cent compared to H2 2022 (946 rounds) and a staggering 66 per cent decrease compared to H1 2022 (1,586 rounds).

Neha Singh, Co-Founder of Tracxn, attributed the funding deceleration to inflation and other macroeconomic factors affecting India's private sector. Despite these challenges, India's start-up ecosystem remains one of the fastest-growing economies globally. Singh noted that in 2022, India ranked third in terms of funding and climbed to second place in Q1 2023, indicating tremendous growth potential despite the current funding climate.

Late-stage funding rounds in H1 2023 experienced a substantial decline of 71 per cent, amounting to $3.8 billion compared to H1 2022. Early-stage rounds secured $1.4 billion, reflecting a 44 per cent decline from H2 2022 and a significant 73 per cent drop from H1 2022. Seed-stage rounds faced similar challenges, with a 41 per cent drop from H2 2022 and a 71 per cent fall from H1 2022, securing only $315 million in funding.

Despite the overall funding decline, the report highlighted that the first half of 2023 witnessed 14 funding rounds surpassing $100 million, marking a 17 per cent increase from H2 2022.

Abhishek Goyal, Co-Founder of Tracxn, highlighted the revolution taking place in Tier 2 and Tier 3 cities, where an increasing number of start-ups are being formed, contributing to the country's economic growth amidst the challenging investment environment. Bengaluru emerged as the leader in total funds raised during this period, followed by Delhi NCR and Mumbai, showcasing the continued significance of these major start-up hubs.

With the funding downturn, layoffs in the global tech sector too have persisted. According to the layoffs tracking site, more than 2.12 lakh employees, ranging from big tech firms to start-ups, lost their jobs in the first half of 2023.

This figure represents an increase compared to the previous year, with 819 tech companies laying off around 212,221 employees as of June 30. India accounted for about five per cent of the layoffs at start-ups globally, with over 11,000 Indian start-up employees being laid off year-to-date, nearly 40 per cent more than in the same period last year.

Furthermore, the funding winter had a profound impact on the emergence of new unicorns in India. No new unicorns were created in the first half of 2023, as start-up funding plunged more than 70 per cent compared to the same period last year.

Data from Tracxn indicated that Indian start-ups raised just $5.48 billion in the first six months of 2023, a significant decrease from the $19.5 billion raised during the corresponding period in 2022.

Observers say the current scenario highlights the ongoing challenges faced by the Indian start-up ecosystem and the need for strategic measures to revive funding and support the growth of start-ups in the country.

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