In the fast-paced realm of entrepreneurship, securing funding is often the lifeblood that transforms visionary concepts into thriving businesses. Startup funding is a critical juncture that propels innovative ideas from the drawing board to reality. The funding landscape is diverse, ranging from traditional sources like banks and angel investors to modern platforms such as crowdfunding and venture capital. India has witnessed a growing interest from both domestic and international venture capitalists. VCs have been actively investing in Indian startups across various sectors, including technology, e-commerce, healthcare, and fintech.
According to a report from Business Standards, startup funding in India experienced a significant decline of over 62%, reaching Rs 66,908 crore in 2023 compared to Rs 1,80,000 crore in 2022. This marks the lowest funding figures since 2018 when Indian startups secured Rs 1,00,930 crore. The pinnacle of funding was achieved in 2021, totaling Rs 2,41,787 crore. The funding for the three-month period from October to December amounted to a total of $957 million, marking it as the least funded quarter since September 2016. The primary cause of this decline is the significant reduction in late-stage funding, plummeting over 73 percent to $4.2 billion in 2023 from $15.6 billion in 2022. With only 17 instances of $100 million-plus funding rounds this year, the number has seen a substantial 69 percent decrease compared to 2022. In the global ranking, India slipped one position to conclude 2023 as the fifth-most funded geography, down from the fourth position in both 2022 and 2021.
According to a Forbes India report, the fintech sector witnessed a funding decrease in 2023, receiving $2.1 billion compared to $5.8 billion in the corresponding period the previous year. Notably, PhonePe emerged as the sector’s top-funded company for the year, securing a substantial $750 million across four series D rounds, constituting 38% of the total sector funding. Other notable companies in the fintech sector securing significant funding include Perfios, InsuranceDekho, and KreditBee.
In the retail sector, Lenskart claimed the top-funded position in 2023, acquiring $600 million through two series J rounds. Additionally, companies such as Zetwerk, Atomberg, and XpressBees were also among the top-funded entities in the retail sector.The enterprise applications sector, although still among the top-funded, experienced a decline in 2023, securing $1.56 billion, reflecting a notable 78% drop from the $7 billion recorded in 2022.
Further, the Funding for startups in smaller towns has experienced a notable increase, with approximately 44% of investors directing their investments towards businesses situated in Tier-II and Tier-III cities, as per the report. In 2023, around 90% of startups originated from Tier-II and Tier-III cities, securing approximately 22% of the overall funding for these small-town ventures. Investors show a preference for technology-driven startups in smaller towns, with approximately 64% of venture capital investments directed towards tech ventures in Tier-II and Tier-III cities.
For 2024, The outlook for startup funding appears quite promising, marked by several positive indicators that bode well for entrepreneurial ventures. Our recent Interim budget also gives greater weightage to startups. The provision of a one lakh crore fund for long-term, low-interest loans dedicated to deep tech in defence reflects the government’s steadfast commitment to promoting innovation. With 43 crore loans sanctioned under PM Mudra Yojana, amounting to 22.5 lakh crore, the entrepreneurial aspirations of our youth receive substantial support. The government’s dedication is further demonstrated by the extension of tax benefits and ongoing support through initiatives like Fund of Funds, Start-Up India, and Start-Up Credit Guarantee, continuing until March 2025. Various state governments have introduced programs to bolster local startups, such as iStart Rajasthan, Startup Odisha, Startup Haryana, among others, acknowledging their significant role in fostering job creation.
Investors, both domestic and international, have shown a strong interest in supporting innovative and promising startups across various sectors. This infusion of capital has not only driven growth but has also enabled entrepreneurs to envision ambitious goals and expand the scale of their ventures. However, the global startup ecosystem is faster in setting up and funding compared to Indian Startups. A time lag exists in the establishment and funding processes between global and Indian startups. The growth trajectory and funding patterns of Indian startups across various sectors tend to occur at a later stage compared to the pace observed in the development of their global counterparts.
The United States has consistently held a prominent position in the global startup funding arena, notably with Silicon Valley serving as the epicenter for numerous successful startups. Over time, other regions, including Europe and Asia, have risen to prominence as significant players in the startup ecosystem. Notably, China and India have become key destinations attracting substantial funding, contributing to the global diversification of the startup landscape.
Due to burgeoning startup ecosystem, sizable consumer market, and access to a skilled workforce, India holds the potential to evolve into a global startup hub. The government’s emphasis on promoting entrepreneurship and innovation, coupled with enhanced access to funding and support mechanisms, further fortifies this potential. India’s diverse sectors, including technology, healthcare, and agriculture, offer ample opportunities for startups to flourish and create value, positioning India as a significant player in the global startup landscape in 2024.
The positive prospects for startup funding in the coming year are driven by a combination of increased investor confidence, technological advancements, supportive government policies, globalisation of investment, a focus on sustainability, and the resilience demonstrated by startups. As we enter the new year, the stage is set for an exciting era of innovation, growth, and investment in the startup ecosystem.
